C O V E R S H E E T for AUDITED FINANCIAL STATEMENTS

SEC Registration Number 2 9 3 1 6

C O M P A N Y N A M E R O B I N S ON S BANK CORPORATI ON AND

SUBSI D I ARY

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 1 7 t h Fl o o r , G a l l e r i a Co r p o r a t e

Ce n t e r , EDSA c o r n e r O r t i g a s A

v e n u e , Qu e z o n Ci t y

Form Type Department requiring the report Secondary License Type, If Applicable 1 7 - A

C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number www.robinsonsbank.com.ph 702-9500 N/A

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 15 Last week of April December 31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number

Ms. Irma D. Velasco [email protected] 702-9515 09988403139

CONTACT PERSON’s ADDRESS

17th Floor, Galleria Corporate Center, EDSA corner , NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies. SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE

1. For the fiscal year ended December 31, 2017

2. SEC Identification Number: 0000029316

3. BIR Tax Identification Number: 000-437-913-000

4. Exact name of issuer as specified in its charter: Corporation

5. Province, Country or other jurisdiction of incorporation or organization: Philippines

6. Industry Classification Code: (SEC Use Only)

7. Address of Principal Office: 17th Floor, Galleria Corporate Center, EDSA corner Ortigas Avenue, Quezon City Postal Code: 1110

8 Issuer's telephone number, including area code: (632) 702-9500

9. Former name, former address, and former fiscal year, if changed since last report. Not applicable

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA. None.

However, the issuer issued exempt securities in the form of Long-Term Negotiable Certificates of Deposits (LTNCTDs) pursuant to Section 9 (e) of the SRC and these were listed with Philippine Dealing & Exchange Corp. (PDEx) as mandated by the Bangko Sentral ng Pilipinas under Section X233.9 d. of the Manual of Regulation for Banks.

Title of Each Class Amount Outstanding

Long-Term Negotiable Certificates of Deposit Php4,182,320,000

11. Are any or all of these securities listed on a Stock Exchange?

Yes [ ] No [ x ]

If yes, state the name of such stock exchange and the classes of securities listed therein: ______Check whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days.

Yes [ x ] No [ ]

13. The aggregate market value of the voting stock held by non-affiliates of the registrant.

Not applicable.

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission. Not applicable.

Yes [ ] No [ ]

DOCUMENTS INCORPORATED BY REFERENCE

15. If any of the following documents are incorporated by reference, briefly describe them and identify the part of SEC Form 17-A into which the document is incorporated:

(a) Any annual report to security holders ------Not applicable

(b) Any proxy or information statement filed pursuant to SRC Rule 20 and 17.1(b)------Not applicable

(c) Any prospectus filed pursuant to SRC Rule 8.1-1------Not applicable TABLE OF CONTENTS

Page No.

PART I BUSINESS AND GENERAL INFORMATION

Item 1 Business…………………………………………………………… 1 Item 2 Properties………………………………………………………….. 19 Item 3 Legal Proceedings………………………………………………... 29 Item 4 Submission of Matters to a Vote of Security Holders …………. 29

PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Issuer’s Equity and Related Stockholders Matters……………………………………………………………. 30 Item 6 Management’s Discussion and Analysis or Plan of Operations……………………………………………… 31 Item 7 Financial Statements…………………………………………….. 38 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures………………………….. 39

PART III CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers of the Issuer………………… 39 Item 10 Executive Compensation………………………………………... 48 Item 11 Security Ownership of Certain Record and Beneficial Owners and Management…………………………………………………. 49 Item 12 Certain Relationships and Related Transactions……………… 50

PART IV CORPORATE GOVERNANCE

Item 13 Corporate Governance…………………………………………... 50

PART V EXHIBITS AND SCHEDULES

Item 14 Exhibits and Reports…………………………………………….. 60 (a) Exhibits (b) Reports on SEC Form 17-C

SIGNATURES 63

EXHIBITS AND ANNEXES 64 PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

(a) Form and Year of Organization

Robinsons Bank Corporation (Bank), as it is today, is the surviving entity of the merger on May 25, 2011 of “Robinsons Savings Bank Corp.”, a savings bank organized on October 8, 1997 and “Robinsons Bank Corporation”, formerly The Royal Bank of Scotland (Philippines), Inc., a commercial bank which was originally established on April 28, 1966.

(b) Bankruptcy, receivership and similar proceedings

The Bank is not subject to any bankruptcy, receivership or similar proceedings.

(c) Material reclassification, Merger, Consolidation, or Purchase of Sale of Assets

Robinsons Savings Bank opened its doors to business in November 1997. It has grown from a small savings bank with a single branch which soon increased to four (4) to a 146 (134 of which belongs to the Bank and 12 to its subsidiary)-branches-strong commercial bank through organic expansion, strategic acquisitions and merger.

The Bank started to grow its branches by bidding and winning from PDIC eight (8) branches of the former Prime Savings Bank. Then in 2002, Robinsons Savings Bank acquired nineteen (19) branches of ABN Amro Savings Bank (Philippines), its licenses to operate branches and its bank deposits. This acquisition made Robinsons Savings Bank the country’s seventh largest thrift bank during the same year.

On February 24, 2010, Robinsons Savings Bank acquired the controlling interest in The Royal Bank of Scotland (Philippines), Inc., a commercial bank, which was later renamed on August 26, 2010 as “Robinsons Bank Corporation”. Incidentally, prior to this change of name, The Royal Bank of Scotland (Philippines), Inc. had the following former corporate names: ABN Amro Bank, Inc. approved on December 28, 2001; ABN Amro Savings Bank Corp. approved on September 7, 1999; Great Pacific Savings Bank Corp. approved on August 27, 1998; BA Savings Bank approved on November 24, 1992; BA Finance Corp. approved on January 29, 1974; and Northern Industrial Finance Corporation approved on April 28, 1966.

By December 2010, the Bangko Sentral ng Pilipinas (BSP) endorsed to the Securities and Exchange Commission (SEC) the merger of Robinsons Savings Bank, the savings bank, and Robinsons Bank Corporation, the commercial bank, with Robinsons Bank Corporation as the surviving entity. On May 25, 2011, the SEC approved the merger of Robinsons Savings Bank and Robinsons Bank Corporation, with the latter as the surviving entity. With this merger, the Bank became the 14th largest amongst commercial banks and the 31st largest bank in the Philippine banking system by the end of 2010.

In December 2012, Robinsons Bank Corporation acquired Legazpi Savings Bank, Inc. With the acquisition, Legazpi Savings Bank (LSB) became a wholly-owned subsidiary of Robinsons Bank Corporation (hereinafter collectively referred to as the “Group”). The acquisition of LSB opened up business lines and helped grew the target market for Robinsons Bank in the Bicol region. Moreover, this has allowed the Bank to operate its countryside banking through LSB’s branches and micro banking offices (MBO).

1 Based on the data as of December 31, 2017 posted by BSP in its website, http.www.bsp.gov.ph, of the forty-three (43) universal and commercial banks operating in the Philippines, the Bank ranked 19th in terms of Total Assets; 19th in terms of Total Loans; 18th in terms of Total Deposits; 30th in terms of Return on Equity (ROE); and 20th in terms of Total Capital.

(d) Business of Issuer – Description of the Business and its Significant Subsidiaries

The Bank is the financial services arm of the JG Summit Group of companies. The Bank is 60.0% owned by JG Summit Capital Services Corporation (JGSCSC) and 40.0% owned by Robinsons Retail Holdings, Inc. (RRHI). It is a full-service Philippine commercial bank and has for its cornerstone a business portfolio of market leaders, a solid financial position and a formidable management team which serve the banking requirements of its customers, business partners and the general banking public through its wide array of products and services.

The Group, offer a full suite of deposit, lending (commercial and consumer), treasury, and trust products and services to corporate, commercial, and retail customers.

i. Principal Products and Services

As a full-service commercial bank, the Bank offers various products and services which are aimed to cater to the needs of its commercial, corporate and retail clients such as the following:

Deposit Products 1. Peso Savings Account ∂ Regular Passbook ∂ ∂ Payroll Account ∂ Tykecoon Kiddie Account 2. Peso Checking Account ∂ Individual Account ∂ Corporate Account 3. Peso Term Deposits ∂ Special Savings Account ∂ Time Deposit 4. Other Foreign Currency Savings and Time Deposit Accounts ∂ US Dollar ∂ Euro (EUR) ∂ Japanese Yen (JPY)

Consumer Loans 1. Home Loan 2. Auto Loan 3. Personal Loan 4. PLP Secured Loan 5. Microfinance 6. Motorcycle Financing 7. Fleet Financing 8. Small Business Loan 9. MSME Loan 10. Credit Card

2 Corporate Banking Products 1. Revolving Promissory Note Line 2. Short, medium, and long-term loans 3. Trade Financing (Import/Domestic/LC/OA/DP) 4. Trust Receipts Financing 5. Supplier and Buyer Financing 6. Trade Check Discounting 7. Vehicle Fleet Financing 8. Domestic Bills Purchase Line 9. Receivables Financing

Treasury Products 1. Peso Special Savings 2. Peso Sovereign Bonds (TBills, FXTNs, RTBs) 3. Peso Corporate Bonds 4. US$, Euro, and Yen Time Deposit 5. Spot and Forward Foreign Exchange for US$ and Third Currencies 6. US$ Sovereign Bonds (ROPs and Sovereign Bonds) 7. US $ Corporate Bonds

Trust Products 1. Unit Investment Trust Fund ∂ Money Market Fund ∂ Balance Fund ∂ Tax-Exempt Retirement Fund 2. Escrows 3. Retirement Fund Management 4. Safekeeping 5. Peso/USD Personal Investment Management Agreement 6. Peso/USD Corporate Investment Management Agreement

Trade Services Products 1. Import ∂ Letter of credit issuance/amendment (Import/Domestic/Standby LC/Bank Guarantee) ∂ Non-documentary import collection ∂ Shipside Bond/Shipping Guaranty Issuance ∂ Trust Receipt Financing ∂ Duties and Taxes Collection 2. Export ∂ Advising export letter of credit ∂ Export bills purchase ∂ Export bills for collection

Transaction Banking Products 1. SME Builder (CheckPro & HRIS) 2. Disbursements ∂ Payroll Crediting ∂ Electronic Crediting ∂ Outsourced Manager’s Check ∂ Outsourced Corporate Check ∂ Domestic and Cross-Border Wire Payments

3 3. Collections ∂ Reference Account Solutions ∂ PDC Warehousing ∂ Merchant Collection (Bills Payment) ∂ Check Collection 4. Others – Liquidity Management 5. Electronic Banking Services ∂ Automated Teller Machine (ATM) ∂ Corporate Internet Banking (e2Banking) ∂ Personal Online Banking (POB) ∂ Robinsons Bank Mobile App

Other Banking Services 1. Telegraphic Transfer 2. Philippine Domestic Dollar Transfer System (PDDTS) 3. Real Time Gross Settlement (RTGS) 4. Western Union 5. OTC Bills Payment 6. Foreign Exchange 7. Deposit Pick-up Service 8. Day and Night Depository Box 9. Safety Deposit Box 10. ATM Guard 11. Bancassurance

ii. Percentage of Sales and Revenues

The income from the Bank’s products and services are categorized into two, namely: interest income from the Bank’s lending, investing and trading activities which accounts for 87% of the Bank’s revenues and other income from commissions, fees, service charges, income from sale of assets, among others which account for the remaining 13% of the Bank’s revenues.

iii. Distribution Methods of Products and Services

The Group’s products and services are made available to its corporate, commercial and retail clients through multiple channels: 146 branch networks in 2017 (of which 134 belongs to the Bank; 12 are LSB branches); 3 MBOs (2 LSB, 1 Bank); 248 ATMs (142 are onsite and 92 are offsite, 14 LSB); online banking (https://www.robinsonsbank.com.ph); and mobile banking which are made available to and can be accessed by Android and iOS users.

Group’s Branches and MBO Directory:

Metro Branches as of December 31, 2017:

1. A. - Unit 7A Commercial Space, The BEACON , A. Arnaiz Avenue corner , Makati City* 2. ACACIA LANE SHAW BLVD. - G/F, Padilla Bldg., #333 Shaw Blvd., Barangay , City* 3. - G/F Unit 4, El Molito Commercial Complex, Madrigal Avenue cor Alabang-Zapote Road, Alabang, City* 4. ASUNCION - - G/F Don Norberto & Doña Salustiana Ty Building, 403 Asuncion Street corner San Nicolas, Binondo, Manila* 5. AYALA - 6780 G/F JAKA 1 Building, , Makati City* 4 6. BANAWE - Store No. 2, Ll Commercial Building, Lot 5 Block 240, Banawe Street, Brgy. Tatalon, Quezon City* 7. BETTER LIVING - G/F Triple M Commercial Building, Doña Soledad Avenue corner Australia Street, Better Living Subd, Parañaque City* 8. BGC - - G/F Unit B, The Cresent Park Residences, 30th Street corner 2nd Avenue, , City* 9. BGC 34TH STREET - Shop 1 Panorama Tower, 34th Street corner Lane A, Bonifacio Global City, Taguig City* 10. BGC 7TH AVENUE - Unit GF 7, Trade and Financial Tower Building, 7th Avenue corner Lane Q Road, Bonifacio Global City, Taguig City* 11. BINONDO - GF01 MZ01 Pacific Centre Building, 460 Quintin Paredes corner Sabino Padilla Street, Binondo, Manila* 12. BONIFACIO GLOBAL CITY - Ground Level, Market Market Mall, Bonifacio Global City, Taguig City* 13. – C5 - G/F Tera Tower, Ortigas Avenue Extension corner C5, Quezon City* 14. - G/F Dona Lolita Bldg. 1, 363 Avenue Extension, Caloocan City* 15. CHINO ROCES AVE. EXTN - G/F 2308 , Chino Roces Avenue Extension, Makati City* 16. CUBAO - P. TUAZON - G/F & Mezzanine, Genato Building, 250 P. Tuazon Cor. 15th Avenue, Cubao, Quezon City* 17. D. GUEVARA MANDALUYONG - G/F RL Building, 50 D. Guevara Street, Mandaluyong City* 18. DEL MONTE AVENUE - G/F EWELL Square Bldg., Del Monte Ave corner Biak-na-Bato, Quezon City* 19. - G/F Airline Operations Center Building, Domestic Road, City* 20. E. RODRIGUEZ SR. AVENUE - G/F JCA Building, No. 1166 E. Rodriguez Sr. Avenue, New Manila, Quezon City* 21. - G/F IBM Plaza Building, Eastwood City, E. Rodriguez Jr. Avenue, Bagumbayan, Quezon City** 22. EDSA-CALOOCAN - G/F Insular Life Building, 462 EDSA near corner Boni Serrano Street, Caloocan City* 23. - Level 1 Padre Faura Wing, , Ermita, Manila* 24. ALABANG - Unit 104, Civic Place Condominium, 2301 Civic Drive, Filinvest Corporate City, Alabang, Muntinlupa City* 25. - G/F New Solid Realty Inc. Building, 357 Sen. Gil Puyat Avenue, Makati City* 26. JP RIZAL MAKATI - G/F Mendoza Building, 834 J. P. Rizal Street corner E. Zobel Street, Makati City* 27. KATIPUNAN - G/F Torres Building, 321 , Loyola Heights, Quezon City* 28. LAS PIÑAS - G86-G87 Robinsons Place Las Piñas, 345 Alabang-Zapote Road, Barangay Talon, Las Piñas City* 29. LAS PIÑAS – PAMPLONA - G/F South Park Heights, 262 Alabang-Zapote Road, Pamplona, Las Piñas City* 30. LEGAZPI ST. MAKATI - G/F, Office 1, Man Tower Legazpi Building, 153 Legazpi Street, Legazpi Village, Makati City* 31. MAGINHAWA - Stalls A & B #143 Maginhawa Street, Barangay Teachers Village, Quezon City** 32. TOWN CENTER - L/G Unit LG026, Town Center, , Quezon City* 33. MAIN OFFICE BRANCH - G/F Galleria Corporate Center, EDSA cor. Ortigas Ave., Quezon City** 34. MAKATI-EVANGELISTA - G/F, #1861 Evangelista Street, Pio Del Pilar, Makati City* 35. - Level 1 – 01127, Robinsons Town Mall Malabon, #5 Governor Pascual Avenue corner Crispin Street, Tinajeros, Malabon City* 36. - VC Chan Bldg. No. 8 Bayan-Bayanan Avenue, Concepcion Uno, Marikina City* 37. MCKINLEY WEST - Lower G/F Cyber Sigma, , Bonifacio South, Taguig City*

5 38. AVENUE - G01 & G02, Robinsons Design Center, 31 , Ortigas, City* 39. MOA COMPLEX - Unit 101, Tower 1 Oceanaire Residences, Sunshine Drive corner Road 23, Coral Way, MOA Complex, Pasay City* 40. MUNTILUPA BAYAN - G/F Joval 1 Bldg. #52 National Highway Putatan, Muntinlupa City* 41. N.S. AMORANTO SR. AVE. - G/F Unit 102 "R" Place Building, #255 N.S. Amoranto Sr. Avenue, Quezon City* 42. (NAIA) - G/F, Rooms 2 & 3, Sky Freight Building, Sky Freight Center, Ninoy Aquino Avenue, Parañaque City* 43. NOVALICHES - G/F Expansion Building, , , Brgy. Pasong Putik, Novaliches, Quezon City** 44. ORTIGAS GREENHILLS - G/F Limketkai Building, Ortigas Avenue corner Roosevelt Street, Brgy. Greenhills, San Juan City* 45. P. RADA TONDO - 580 - 584 Padre Rada Street, Tondo, Manila* 46. PASAY LIBERTAD - G/F Cementina Corporation Building, 160 A. Arnaiz Avenue corner Cuenca Street, Pasay City* 47. - G/F 111 Paseo de Roxas Building, Legazpi Street corner Paseo De Roxas, Makati* 48. PASIG – C. RAYMUNDO - G/F Marius Arcadia Building, C. Raymundo Avenue corner Pag- Asa Street, Pasig City* 49. PASIG – METRO EAST - L/G , Marcos Highway, Barangay De la Paz, Pasig City* 50. PIONEER CYBERGATE - Upper G/F, Robinsons Pioneer Cybergate Center 1, , Mandaluyong City* 51. - G/F Q.C Avenue Mall, Quezon Avenue cor. Scout Borromeo St., South Triangle, Quezon City* 52. REGALADO AVENUE - RS137-05 Robinsons Townville Regalado Fairview, Quezon City* 53. ROOSEVELT AVENUE - G/F MCCM Bldg. 311 Roosevelt Avenue, , Quezon City* 54. - G/F Units 3, 4 & 5 Samson Square Bldg, Samson Road corner Dagohoy Street, Caloocan City* 55. SAN MIGUEL - G/F Building, , , Pasig City* 56. SANTOLAN PASIG - G/F AD Center Square, Amang Rodriguez corner Evangelista Street, Santolan, Pasig City* 57. SEDEÑO SALCEDO VILLAGE - G/F, Unit G-104, 88 Corporate Center, #141 Sedeño corner Valero Street, Salcedo Village, Makati City* 58. - G/F Pelbel Building I, #2019 Shaw Boulevard, Pasig City* 59. SOLER - G/F, Filamco Building, #1220-1222, Soler corner Masangkay Streets, Binondo, Manila* 60. SUCAT - Units B13 & B17, JAKA Plaza Mall, Dr. A. Santos Avenue, Parañaque City* 61. TOMAS MORATO - JSB Building, corner Scout Delgado Street, Quezon City* 62. VALENZUELA – Unit A South Supermarket, McArthur Highway, , Valenzuela City* 63. AVENUE - G/F M & L Building, Visayas Avenue corner Road 1, Quezon City* 64. WEST AVENUE - G/F Prosperity West Center Building, 92 A West Avenue, Quezon City* 65. WHITE PLAINS - Francisco Santos Building, 138 Katipunan Ave., Barangay Saint Ignatius, Quezon City* 66. WILSON ST. GREENHILLS - G/F, Wilson Corporate Center, Wilson Street, Greenhills, San Juan City* Provincial Branches as of December 31, 2017:

1. ANGELES - Level 1 Robinsons Place Angeles, McArthur Highway, Balibago, Angeles City, * 2. ANTIPOLO - Unit 169-A, Robinsons Place Antipolo, /Circumference Avenue, Dela Paz, Antipolo City*

6 3. ANTIQUE - Level 1 - 116, 117 & 118 Robinsons Place Antique, Brgy. Maybato, San Jose de Buenavista, Antique* 4. - Level 1 C2002, The Central Citywalk, Robinsons Place Bacolod, Lacson Street, Mandalagan, Bacolod City, Negros Occidental* 5. BACOOR - Units 1 & 2, Apollo Mart Building, #369 Gen. Aguinaldo Highway, Talaba 4, Bacoor, Cavite* 6. BAGUIO - G/F, ECCO/EDGARDOMCO REALTY CORP. Bldg., #43 Assumption Road, Baguio City* 7. BAIS - G/F Stall No.1, Bais Commercial Center, Marina Building, Quezon corner Aguinaldo Street, Bais City, Negros Oriental* 8. BALAGTAS - G/F 103-1 Balagtas Town Center, McArthur Highway, Borol 1st, Balagtas, Bulacan* 9. BALANGA - G/F, R & R Building, Don Manuel Banzon Avenue, Doña Francisca, Balanga City, Bataan* 10. BALAYAN - G/F Stalls Numbers 2, 3 & 4 Balayan Public Market, Plaza Mabini Street, Balayan Batangas* 11. BATANGAS CITY - G/F Odeste Building, P. Burgos, Brgy. 13, Batangas City* 12. BAYAWAN - Shop 3, Bollos Street corner National Highway, Brgy. Poblacion, Bayawan City, Negros Oriental* 13. - Level 1 - 01160, , Km. 3 J.C Aquino Avenue, Brgy Libertad, Butuan City, ** 14. CABANATUAN - G/F Franklin de Guzman Building, Km. 114 Maharlika Highway Zulueta District (Pob.) Cabanatuan City, Nueva Ecija* 15. - Level 1 Robinsons Supercenter, Rosario Street, Lim Ket Kai Drive, Lapasan, Cagayan De Oro City* 16. - G/F Gusali 888 Building, Ortigas Avenue Extension, Cainta, Rizal* 17. CALAMBA - G/F FP Perez Building, National Highway, Parian, Calamba City, Laguna** 18. CALAPAN - G/F Neo Calapan Mall, LS 008, Roxas Drive, Barangay Sto. Niño, Calapan, Oriental Mindoro* 19. CALASIAO - Level 1 - 01134, Robinsons Place Pangasinan, Mac Arthur Highway, Brgy. San Miguel, Calasiao, Pangasinan* 20. CDO- - G/F Pelaez Commercial Arcade 1 corner Tiano Bros. and Cruz Taal Streets, Divisoria, Cagayan De Oro City, Misamis Oriental* 21. CEBU OSMENA - 2nd Level Robinsons Place Cebu, Fuente Osmeña Avenue, Cebu City* 22. CEBU GARCIA-LLORENTE - G/F , Don Gil Garcia cor. J. Llorente St., Capitol Site, Cebu City* 23. CEBU GALLERIA - B101 Cebu, Maxilom-Osmeña Boulevard, 13th Avenue & Benedicto Street, North Reclamation Area, Cebu City* 24. CEBU MANDAUE - G/F Catiaoking Bldg, North Road, Tabok, Mandaue City, Cebu* 25. DAGUPAN - Guanzon Building, Perez Blvd, Dagupan City, Pangasinan* 26. DASMARIÑAS - Level 1 - 01302 Robinsons Place Dasmariñas, E. Aguinaldo Hi-way corner Governor's Drive, Pala-Pala, Dasmariñas, Cavite* 27. DAVAO - Door 1 & 2, Edward V. A. Lim Bldg., Sta. Ana Ave., * 28. DAVAO CYBERGATE - Level 1, Unit 109, Robinsons Cybergate Davao, J. P. Laurel Ave., Davao City* 29. DAVAO MONTEVERDE - Haw Bldg. T. Monteverde Avenue, Davao City* 30. DOLORES - SFDO - Franda Building, McArthur Highway, Barrio Dolores, City of San Fernando* 31. DUMAGUETE - Stall AF 25-27 Robinsons Dumaguete, Dumaguete South Road cor. Perdices St., Dumaguete City* 32. GENERAL SANTOS - G/F Robinsons Place, Natividad Street corner J. Catolico Avenue, General Santos City* 33. GENERAL TRIAS - Level 1 - 155 & 156 Robinsons Place General Trias Mall, Antero Soriano, EPZA-Bacao Diversion Road, Brgy. Tejero, General Trias, Cavite* 34. ILIGAN CITY - Level 1 L1 136 & 137 Robinsons Place Iligan, Barangay Tubod, Iligan City, Lanao Del Norte*

7 35. ILOCOS NORTE - 2nd Floor Space No. 212-213, Robinsons Ilocos Norte, Valdez Center, Brgy. 1, San Nicolas, Ilocos Norte* 36. ILOILO - Unit 189-190, G/F Robinsons Place Iloilo, Corner Mabini-Del Leon Streets, Iloilo City, Iloilo* 37. IMUS - G/F Robinsons Place Imus, Emilio Aguinaldo Highway, Imus, Cavite City* 38. JARO - Level 1 – Unit G-17 B, Robinsons Place Jaro, E. Lopez Street, Brgy. San Vicente, Jaro, Iloilo* 39. KABANKALAN - G/F NZ Business Center (NZBC) Building, JY Perez Highway, Kabankalan City, Negros Occidental* 40. LEGAZPI CITY - G/F, Yuzon Commercial Bldg.,Quezon Avenue, Legazpi City, Albay* 41. LIPA - G/F Robinsons Place Lipa, Expansion Wing, J.P. Laurel Highway, Mataas na Lupa, Lipa City, Batangas* 42. LUCENA - G/F AZDEMARK Building, 11 Quezon Avenue, Lucena City* 43. LUISITA TARLAC - Unit 102 Robinsons Luisita, McArthur Highway, San Miguel, Tarlac City* 44. MALOLOS - Level 1 – 01123 Robinsons Place Malolos, Mc Arthur Highway, Barangay Mabolo, Malolos, Bulacan* 45. MEYCAUAYAN - G/F EMCCO Building, McArthur Highway corner Malhacan Road, Calvario, Meycauayan City, Bulacan* 46. NAGA - G/F Crown Hotel Building, Peña Francia Avenue, Naga City* 47. OLONGAPO - G/F 1370 Extension, East Tapinac, Olongapo City, Zambales* 48. OZAMIZ - G/F Ozamis Insular Life Building, Don Anselmo Bernard Avenue corner Angel Medina Avenue, Ozamis City, Misamis Occidental* 49. PALAWAN - Unit 220-222, 2/F, Mall, City, Palawan* 50. PASSI - Units G5-G6, Ground Floor, Gaisano Capital - Passi, Simeon Aguilar Street, Passi City, Iloilo** 51. ROBINSONS NORTH TACLOBAN - G/F Robinsons North Taloban, Brgy. Abucay, Tacloban City, Leyte* 52. ROBINSONS PLACE NAGA - Level 1 Unit 101 Robinsons Place Naga, Roxas Avenue corner Almeda Highway Barangay Triangulo, Naga* 53. ROXAS - Level 1-1133B, Robinsons Place Roxas, Pueblo de Panay, Barangay Lawa-an, Roxas City, Capiz* 54. SAN FERNANDO - Level I Robinsons Starmills, Candaba Gate, Olongapo-Gapan Road, San Jose, San Fernando City, Pampanga* 55. SAN PABLO - G/F Estrellado Building, Paulino Street, San Pablo City, Laguna* 56. SAN PEDRO - G/F Space 102, ETG Business Center, A. Mabini Street, Barangay Poblacion, San Pedro City, Laguna* 57. SANTIAGO - Level 1-01103, Robinsons Place Santiago, Barangay Mabini, Santiago City, Isabela* 58. STA. ROSA - Level 1 Robinsons Sta. Rosa Market, Old National Highway, Bo. Tagapo, Sta. Rosa City, Laguna* 59. STA. ROSA ESTATES 2 - Sta. Rosa-Tagaytay Road, Sta. Rosa City, Laguna* 60. STO. TOMAS - GF Unit 3, Sierra Makiling Commercial Complex, Maharlika Highway, Brgy. San Antonio, Sto. Tomas, Batangas* 61. TACLOBAN - Robinsons Place Tacloban, Level 1-00103, National Highway, Tabuan, Marasbaras, Tacloban City* 62. TAGAYTAY - Level 2, 00210 Summit Ridge, General Aguinaldo Highway, National Road, Brgy. Maharlika, Tagaytay City, Cavite* 63. TAGBILARAN - G/F Castelcelo Building 1, C. Gallares Street corner J. S. Torralba Street, Poblacion II, Tagbilaran City, Bohol* 64. TAGUM - Level 1 – Unit 167 Robinsons Place Tagum National Highway, Brgy. Visayan Village, Tagum, Davao del Norte* 65. TAYTAY - Red Ribbon Uptown Building, Manila East Road, Barangay San Juan,Taytay, Rizal* 66. - G/F, Lui Building, Bonifacio St., Centro 04, Tuguegarao City, Cagayan Valley* 67. URDANETA - G/F S-Plaza Building, McArthur Highway, Urdaneta, Pangasinan*

8 68. VIGAN - LS1-08-2, Xentro Mall Vigan, Quezon Avenue, Brgy. VIII, Vigan City, Ilocos Sur**

*One (1) ATM **Two (2) ATMs

Robinsons Bank Micro Business Office (MBO) as of December 31, 2017

1. LIPA – G/F Robinsons Place Lipa, Expansion Wing, J.P. Laurel Highway, Mataas na Lupa, Lipa City Batangas.

LSB Branches as of December 31, 2017

1. LEGAZPI - Sagpon, Albay District, Legazpi City* 2. DARAGA - Poblacion, Daraga, Albay* 3. TOBACO - A.A Berces St.,Basud,Tabaco City* 4. POLANGUI - Barangay Basud, Polangui Albay* 5. SORSOGON - CBH Building, Jamoralin Street,Brgy. Burabod,Sorsogon City* 6. ALBAY - Sagpon, Albay District, Legazpi City* 7. DAET – J Lukban Street, Daet, Camarines Norte* 8. GUINOBATAN – LSB Building, T. Paulate Street, Guinobatan, Albay** 9. VIRAC – Rizal Avenue, San Jose, Virac, Catanduanes* 10. MASBATE - Cagba,Tugbo, Masbate City* 11. NAGA - CBD Terminal,Triangulo, Naga City* 12. LUCENA - M.L Tagarao corner Elias Streets Brgy.5 Lucena City, Quezon*

LSB Micro Business Office (MBO) as of December 31, 2017

1. GOA – Unit 1, JJFQ Bldg., Rizal St., Goa Camarines Sur* 2. CALAUAG - Maharlika Highway, Sta. Maria, Calaug, Quezon

*One (1) ATM **Two (2) ATMs

Robinsons Bank – Off-site ATM Directory

Metro Manila Off-site ATMs as of December 31, 2017:

1. BF HOMES - Aguirre Avenue, BF Homes, Parañaque City 2. BRIDGEWAY - G/F Robinsons Equitable Tower, Ortigas, Pasig City 3. CFG PARK AVENUE 2 - Consumer Finance Group, Park Avenue, Robinsons Galleria, Ortigas, Quezon City 4. CYBER SIGMA - The Northwest Lobby, Cyber Sigma, Lawton Avenue, Bonifacio South, Taguig City 5. CYBERGATE TOWER 1 - U/GF Robinsons Cybergate Tower 1, Pioneer, Mandaluyong City 6. CYBERSCAPE ALPHA - G/F, Cyberscape Beta Bldg., Garnett and Sapphire Roads, Ortigas Center, Pasig City 7. CYBERSCAPE BETA - G/F, Cyberscape Beta Bldg., Topaz and Ruby Roads, Ortigas Center, Pasig City 8. DOMESTIC 2 - Ground Floor Cafeteria, Cebu Pacific Air Head Office, Domestic Airport Road, Pasay City 9. GBF ROSARIO - Amang Rodriguez Ave, Rosario, Pasig City 10. MINISTOP GALLERIA - Ministop, Robinsons Galleria, EDSA cor. Ortigas Ave., Quezon City 11. MS BANSALANGIN - 995 EDSA cor. Bansalangin St., , Quezon City 12. MS ESCRIVA - B2 L1 Escriva Drive cor. Lukban St., San Antonio, Pasig City 13. PARK AVENUE 2 - Basement 1 Park Avenue, Robinsons Galleria, Ortigas, Quezon City 14. RDS GALLERIA - Robinsons Dept Store, 2F East Wing Entrance, Robinsons Galleria, EDSA cor. Ortigas Ave., Quezon City

9 15. RDS MANILA - G/F Robinsons Dept Store, Robinsons Place, Ermita, Manila 16. RDS METRO EAST - G/F Robinsons Dept Store, Robinsons Metro East, Marcos Highway, Brgy De la Paz, Pasig City 17. RETAIL H. O. 2 - Building 1, Robinsons Retail Group, 110 E. Rodriguez, Jr. Ave., Libis, Quezon City 18. RETAIL H. O. 3 - Building 3, Robinsons Retail Group, 110 E. Rodriguez, Jr. Ave., Libis, Quezon City 19. RETAIL HEAD OFFICE - Building 1, Robinsons Retail Group, 110 E. Rodriguez, Jr. Ave., Libis, Quezon City 20. ROBINSONS FORUM - No. 30, Robinsons Forum, EDSA Corner Pioneer Street, Mandaluyong City. 21. ROBINSONS MAGNOLIA TOWN CENTER - U/G Robinsons Dept Store, Robinsons Magnolia Town Center, Aurora Blvd. cor. Hemady and N. Domingo St., New Manila, Quezon City 22. ROCKWELL - 8th floor Rockwell Business Center Tower II, Ortigas, Pasig 23. RSC ERMITA - G/F Robinsons Supermarket, Robinsons Place, Ermita, Manila 24. RSC FEDERAL BAY - G/F, Royal Palm Tower, Macapagal Ave., Pasay City 25. RSC GALLERIA - Level 1 Robinsons Supermarket, Robinsons Galleria, EDSA cor. Ortigas Ave., Quezon City 26. RSC GRACELAND - Robinsons Supermarket Graceland, J. P. Rizal St., Brgy. , Marikina City 27. RSC KARANGALAN - Robinsons Supermarket Karangalan Branch, Magsaysay St. cor. Felix Avenue, Manggahan, Pasig City 28. RSC MERCEDES - Robinsons Supermarket Mercedes, Mercedes Ave. Pasig City 29. RSC MERVILLE - Robinsons Supermarket, Edison Ave. cor. West Service Rd., Brgy Merville, Parañaque City 30. RSC OTIS - 1536 Paz M. Guanzon St., 831 Zone 90, Paco, Manila 31. RSC TANDANG SORA - 105 RMR Square Mall, Tandang Sora Ave., Brgy Pasong Tamo, Quezon City 32. RSC TUTUBAN - Robinsons Supermarket G/F Cluster Bldg., , Manila 33. ST FRANCIS SQUARE - G/F St Francis Square Building, Bank Drive cor. , Mandaluyong 34. TELEPERFORMANCE 2 - IT Center II, United St. Mandaluyong City 35. TELEPERFORMANCE SHAW - Greenfield District IT Center II, United St. Mandaluyong City 36. TERA TOWER - G/F, Tera Tower, Bridgetowne – C5 corner Ortigas Avenue Extension, Quezon City 37. THE SAPPHIRE BLOC - G/F, The Sapphire Bloc, Sapphire Road, Ortigas Center, Pasig City 38. URC 2 - E. Rodriguez Ave. cor. Pasig Blvd., Bagong Ilog, Pasig City 39. URC LITTON MILLS - Litton Mills Compound, Amang Rodriguez Ave, Rosario, Pasig City Provincial Offsite ATMs as of December 31, 2017:

1. ALBAY 738 - 738 Bldg., Rizal St., Old Albay District, Legaspi City, Albay 2. BACOLOD TELE - G/F Luxor Plaza IT, Magsaysay Ave. cor Lacson St., Bacolod City 3. CEBU GALLERIA 2 - Level 1, ATM 3, , Maxilom-Osmeña Blvd., 13th Ave. and Benedicto Sts., North Reclamation Area, Cebu City 4. CEBU SHEENA - V. L. Peliña Bldg., cor. Colon and Panganiban Sts., Cebu City 5. EASYMART CONCEPCION - Robinsons Easymart, Cor. La Purisima St., San Nicolas Poblacion, Concepcion, Tarlac 6. EASYMART SAN SEBASTIAN - Robinsons Easymart, San Sebastian Village, Brgy. San Sebastian, Tarlac City 7. EASYMART STO. TOMAS - La Corona, Brgy. San Matias, Sto. Tomas, Pampanga 8. ILOILO JB LACSON - John B. Lacson Maritime University, Sto Nino Sur, Arevalo, Iloilo City 9. JBL MOLO ILOILO - JB Lacson Foundation Maritime University, San Juan St., Molo, Iloilo City 10. JG PETROCHEM - JG Summit Petrochemicals Corporation, Barangay Simlong, Batangas City 11. JGC TACLOBAN - JGC Financing Company Building, Corner M. H. Del Pilar and P. Gomez Sts., Tacloban City, Leyte

10 12. LIPA 2 - G/F Expansion Wing , Robinsons Place Lipa, J. P. Laurel Highway, Mataas-na-Lupa, Lipa City, Batangas 13. MANAOAG - Minor Basilica of Manaoag, Milo St., Manaoag, Pangasinan 14. MARINERS NAGA - Mariners' Polytechnic Colleges Foundation, Baras, Canaman, Camarines Sur 15. MATINA IT PARK - Matina IT Park, Gen. Douglas McArthur Highway, Talomo, Davao City 16. PEZA BAGUIO - Baguio Economic Zone, Loakan Rd., Baguio City 17. RDS ANTIPOLO - G/F, Robinsons Dept. Store, Robinsons Place Antipolo, Circumference Ave., Sumulong Highway, Brgy. Dela Paz, Antipolo City 18. RDS BACOLOD - Level 1 Robinsons Dept Store, Robinsons Place Bacolod, Lacson St., Bacolod City 19. RDS BUTUAN - G/F, Robinsons Department Store, Robinsons Place Butuan, J. C. Aquino St., Brgy. Libertad, Butuan City 20. RDS CABANATUAN - Level 2, Robinsons Dept Store, NE Pacific mall, km. 111 Maharlika Highway, Cabanatuan City, Nueva Ecija 21. RDS DAVAO - 2nd Flr Robinsons Department Store, Mall, J.P Laurel Avenue, Davao City 22. RDS DUMAGUETE - G/F Robinsons Dept Store, Robinsons Dumaguete, Dumaguete South Road cor. Perdices St., Dumaguete City 23. RDS ILOILO - G/F Robinsons Dept. Store, Robinsons Place Iloilo, Mabini St., Iloilo City 24. RDS IMUS - 2nd Level Robinsons Dept Store, Robinsons Place Imus, E.Aguinaldo Highway, Imus, Cavite 25. RDS PALAWAN - G/F Robinsons Dept Store, Robinsons Place Palawan Mall, Puerto Princesa City, Palawan 26. RP ILIGAN - Level 1, Robinsons Place Iligan, Brgy. Tubod, Iligan City, Lanao Del Norte 27. RP NAGA OFFSITE - Level 1, Robinsons Place Naga, Roxas Ave. cor. Almeda Highway, Brgy. Triangulo, Naga City, Camarines Sur 28. RSC BALAGTAS - Robinsons Supermarket, Balagtas Town Center, Mc Arthur Highway, Borol First, Balagtas, Bulacan 29. RSC BUHAY NA TUBIG - Robinsons Supermarket, Palico Road, Barangay Buhay na Tubig, Imus City, Cavite 30. RSC CABUYAO - Robinsons Supermarket, Cabuyao Centro Mall, National Highway, Brgy. Pulo, Cabuyao City, Laguna 31. RSC CAGAYAN DE ORO - G/F Big R Supercenter, Cagayan de Oro, City 32. RSC CEBU TALAMBAN - Robinsons Supermarket Talamban, G/F Talamban Time Square, Brgy. Talamban, Cebu City 33. RSC DASMARINAS - Robinsons Supermarket Dasmariñas, E.Aguinaldo Highway cor. Governor's Drive, Pala-Pala, Dasmariñas, Cavite 34. RSC GUAGUA - Guagua Town Center, Jose Abad Santos Ave., Brgy. San Matias, Guagua, Pampanga 35. RSC GUSA - Robinsons Supermarket, Phase 2, Villa Ernesto Subd., National Highway, Cagayan de Oro City 36. RSC LIMKETKAI - Robinsons Supermarket, 1st Level, South Concourse, Limketkai Mall, Cagayan De Oro City 37. RSC MABALACAT - Robinsons Supermarket Mabalacat, JOMAFER Bldg., Lot 1 Blk. 65, Severa Subd., Brgy. Tabun, Mabalacat City, Pampanga 38. RSC MACTAN - Robinsons Supermarket, Pueblo Verde Mactan Economic Zone II along Maximo Patalinghug Highway, Brgy. Basak, Lapu-lapu City, Cebu 39. RSC MALOLOS - Robinsons Supermarket, Bulacan State University grounds, McArthur Highway, Guinhawa, Malolos, Bulacan 40. RSC MEYCAUAYAN - Robinsons Supermarket Meycauayan Branch, EMA Town Center, El Camino Rd., Meycauayan, Bulacan 41. RSC MOLO - MH Del Pilar St., Molo, Iloilo City 42. RSC NAGA - G/F Robinsons Supermarket, Nagaland E-mall, Elias Angeles St., Naga City, Camarines Sur 43. RSC NUVALI - Robinsons Supermarket Nuvali, Tagaytay Road, Sta Rosa, Laguna

11 44. RSC PACITA - Robinsons Supermarket, Block 6 lot 3-A Pacita Ave. cor. 2nd St., Pacita Complex Phase 1, San Pedro, Laguna 45. RSC PERDICES - Lower G/F, Mart One, Gov. Perdices St., Dumaguete City, Negros Oriental 46. RSC PULILAN - Dona Remedios Trinidad Highway, Pulilan Junction, Brgy. Cut-cot, Pulilan, Bulacan 47. RSC TAGAYTAY - Robinsons Supermarket, Summit Ridge, Tagaytay, Cavite 48. RSC TARLAC - Robinsons Supermarket, Robinsons Luisita, McArthur Highway, San Miguel, Tarlac City 49. RSC THE DISTRICT - Robinsons Supermarket, The District Dasmariñas, Molino-Paliparan Road, Dasmariñas, Cavite 50. UNIVERSITY OF SAN AGUSTIN - University of San Agustin, Jalandoni St., Iloilo City 51. URC CAVITE - First Cavite Industrial Estate, Langkaan, Dasmarinas, Cavite 52. URC PAMPANGA PLANT - URC Pampanga Plant, Brgy Del Rosario, San Fernando, Pampanga 53. URSUMCO - URSUMCO Cmpd., National Highway, Brgy. Alangilanan, Manjuyod, Negros Oriental

Legend:

MS – Ministop RDS – Robinsons Department Store RSC – Robinsons Supermarket Corporation RP – Robinsons Place URC – Corporation (e) Status of Publicly Announced New Products and Services

Robinsons Bank Credit Cards - In October 2017, the Bank launched its credit card business with Mastercard “UNO” and “DOS” credit card products. The “DOS” card is the first and only credit card in the market that automatically splits all transactions into two monthly installments at 0% interest. Both cards (UNO and DOS) are 3D Secured, providing the cardholders high-level of protection against fraud.

Robinsons Bank Card (VDC) – This product was fully launched in 2017. The VDC is an EMV (Europay Mastercard Visa) chip-enabled card which makes transactions more secure, allowing cardholders to shop online, dine, and travel with ease and protection.

Personal Online Banking Web – Banking through the internet was enhanced in 2017 with Robinsons Bank Personal Online Banking. The website was designed to provide optimal view experience and easy reading and navigation across a wide range of devices.

Personal Online Banking Mobile – Launched in November 2017 and is the critical component of the Bank’s omni-bank strategy to improve customer experience. The app’s features include multi-factor authentication (MFA) and fingerprint scanner for security. The app runs on both iOS and Android, and allows the customer to perform the same transactions available in Robinsons Bank Personal Online Banking.

(f) Competition

The Bank is subject to significant levels of competition from many other Philippine banks and branches of international banks, including, in some instances, competitors that have greater financial and other capital resources, greater market share and greater brand name recognition than the Bank. The banking industry in the Philippines is a mature market that has, in recent years, been subject to consolidation and liberalization, including liberalization of foreign ownership restrictions. As of April 2, 2018, according to BSP, there are 43 universal and commercial (local and foreign) banks in the Philippines.

12 In the future, the Bank may face increased competition from financial institutions offering wider range of commercial banking services, with larger lending limits, greater financial resources, and stronger financials than the Bank.

Increased competition may arise from:

∂ other large Philippine banking and financial institutions with significant presence in and large country-wide branch networks;

∂ foreign banks, due to, among other things, relaxed foreign bank ownership standards permitting large foreign banks to expand their branch network through acquiring domestic banks;

∂ ability of the Bank’s competitors to establish new branches in Metro Manila due to the removal of the existing new branch license restriction scheme in 2014;

∂ domestic banks entering into strategic alliances with foreign banks with significant financial and management resources; and

∂ continued consolidation in the banking sector involving domestic and foreign banks, driven in part by the gradual removal of foreign ownership restrictions.

There can be no assurance that the Bank will be able to compete effectively in the face of such increased competition. Increased competition may make it difficult for the Bank to increase the size of its loan portfolio and deposit bases and may cause increased pricing competition, which could have an effect on its growth plans, margins, ability to pass on increased costs of funding, results of operations and financial position, which could materially and adversely affect the Bank’s business, financial conditions and results of operations.

But, despite of that, per BSP data for the period 2014 to 2017, the improved ranking of the Bank in the last four years shows the competitive strength of Robinsons Bank against its peers.

The table below summarizes the Bank’s total assets and ranking in the last four years:

Year Total Assets Ranking 2014 47.8 billion 26th 2015 55.8 billion 22nd 2016 75.9 billion 20th 2017 105.1 billion 19th

(g) Transactions with and/or Dependence on Related Parties

Except those which were entered into in the ordinary course of business such as DOSRI loans and related party transactions (RPT), the Bank has no transactions with and/or dependence on its related parties.

(h) Trademarks, License, Franchises, etc.

Except for software license agreements which it entered into in the ordinary course of business with some information technology companies, the Bank’s business and

13 operations are not dependent upon any patents, trademarks, copyrights, licenses, franchises, and royalty agreements.

In 2017, the Bank has filed an application for registration with the Intellectual Property Office (IPO) for the “UNO” and “DOS” tradenames of the Bank’s credit card products.

(i) Sources and Availability of Raw Materials and the Names of Principal Suppliers

Not applicable.

(j) Disclosures on how Dependent the Issuer’s Business is upon a Single Customer or a Few Customers

Not applicable. The Bank’s business is not dependent upon a single or few customers.

(k) Need for any Government Approval of Principal Products or Services

The Bank is governed by the rules and regulations issued by the BSP and other government regulators. The Bank observes and complies with all government laws, rules and regulations that exist prior to the launch of any product or service.

(l) Effect of Existing or Probable Governmental Regulations on the Business

As a domestic commercial bank, the Bank is governed by the rules and regulations of the BSP and other government regulators. The Bank ensures that its business operations comply with all applicable government laws, rules and regulations such as BSP mandate on financial inclusions, limits, circulars, Capital Adequacy Ratio, reserves, liquidity, AMLA, and other reportorial requirements.

(m) Amount Spent on Research and Development Activities

In 2017, the Bank had spent Php303.05 million on research and development activities. Breakdown of the R&D expenses by the Bank are as follows:

Particulars Amount (in Php million) Education and Training 10.60 Advertising Expenses 25.00 Technology 267.46 Total R&D for 2017 303.05

(n) Cost and Effect of Compliance with Environmental Laws

Not applicable.

(o) Total Number of Employees

As of December 31, 2017, the Bank had 1,629 employees composed of 666 officers and 963 staff, with 1,488 regular employees and 141 probationary employees. The Bank has no existing employees’ union. It has also no collective bargaining agreement.

In addition to salary, the Bank gives its employees fringe benefits, consisting of 13th month pay, mid-year bonus, Christmas bonus, promotion and merit increases, group life insurance, group hospitalization, personal accident insurance, car plan, motorcycle plan, hazard pay, tellers allowance, communication allowance, gas/transportation allowance, 14 out-of-station allowance, relocation allowance, salary loans, housing loan, vehicle loan, and various leaves (sick, vacation, maternity, paternity, solo parent, among others).

(p) Risk Management

The Bank positions itself to become a more visible commercial bank and a significant player in the banking industry. The Bank aims to introduce new products and services and to fully develop the most significant areas of its operations while being cognizant of the associated risks.

The Bank’s Risk Management is headed by the Chief Risk Officer (CRO) and is responsible for oversight of enterprise risk management, risk governance and control, framework, policies and practices. The CRO is supported by a dedicated team of risk management professionals organized to oversee risks arising from each of the Bank’s risk categories.

The Bank takes a comprehensive approach to Risk Management with a defined framework and an articulated Risk Appetite Statement, which are approved by the Risk Management Committee (RMC) and the Board of Directors (Board).

i. Market and Liquidity Risk

Market Risk is defined by the Bank as the risk to earnings or capital arising from changes in the value of traded portfolios of financial instruments. It is the exposure to the uncertain market value of a portfolio due to price fluctuations. The value of investments fluctuates over a given time period because of general market conditions, economic changes or the events that impact large portion of the market such as political events, natural calamities, and others. This risk arises from market-making, dealing, and position-trading and non- trading activities.

In managing Market Risk, the Bank consider the following factors in getting up the market limits: business prospects, present market conditions, expected returns and budget for the year, among others. It is the responsibility of the risk-taking personnel to request or renew market risk limits. The limits are approved by the Board through the Risk Management Committee.

The Board approved the following set of risk control limits that are intended to prevent over- trading, excessive concentration, and limit financial loss arising from the Bank’s exposure to market risk.

1. Aggregate Control Limits Aggregate Control Limits refer to the boundary limits and loss limits around the business activities other than VAR and Stop Loss limits. Aggregate control limits would include, for example, permitted instruments and currencies, volume limits, and other similar limits.

2. Value-at-Risk Limits Value-at-Risk (or VaR) measures the potential loss of value resulting from unlikely, adverse event in the normal market environment in a specified period of time within a specified probability of occurrence. It is a measure of likely earnings volatility for marked-to-market portfolios.

15 VaR is also used to alert the senior management whenever the potential for losses in the Banks trading portfolio exceeds tolerable levels. Because the VaR measure is tied to market volatility, it gives an immediate “feel” for the amount of risk in a portfolio especially in dynamic and volatile market environments. It therefore allows management to react quickly its portfolio strategies in different market conditions in accordance with its risk philosophy and appetite.

3. Stop Loss and Loss Alert Limits Stop loss and loss alert limits are pre-determined level of losses within a defined time period (month-to-date or year-to-date), set as a function of the tolerable VAR and whose effect on capital adequacy is given due importance.

Stop loss and loss alert limits are compared on a daily basis with the cumulative business day realized and unrealized (marked-to-market) profits/losses. If an excess occurs, the concerned risk-taking personnel/unit is given notice through a standard breach regularization form, where the details of the breach is served. The concerned risk-taking personnel/unit is required to provide justification, strategy or alternative courses of action which will be approved by the appropriate authority based on the exception management matrix.

4. Weighted Average Modified Duration The portfolio modified duration is a strategic tool used to model portfolio risk. To operate modified duration as a risk management tool, it is important to apply it on the overall portfolio as well as on the individual securities comprising the portfolio. The goal is to control excessive losses beyond the calculated modified duration.

5. Off-Market Rate Tolerance Off-market rate tolerance limit is set up to mitigate the operational risk that dealers may consummate deals at an off-market rate even after carefully checking prevailing prices. This matter because an attempt to alter profit and loss (P&L) may require the trader to enter trades at an off-market rate. By doing so, the trades could reverse any P&L that the trader may have incurred in the other positions. The limits are also set up to rectify erroneous pricing and identify deal prices that are adverse to the Bank’s P&L.

For transactions incorrectly tagged as off-market rates transactions, ERMG independently reviews the cause of the breach and documents supporting worksheets that would illustrate how such deals are evaluated and how tolerance band is recomputed based on the market rates prevailing at deal date.

The limits were obtained by performing box-and-whiskers on the posted data and on market rates for foreign exchange trading and box-and-whiskers on posted transactions for fixed income trading.

6. Dealer Single Transaction Limits Trader limits enable delegation of authority to execute transactions for and in behalf of the Bank to allow continuity of the treasury function even in the absence of the Treasurer. Trader limits aim to manage operational risks that is caused by this delegation of authority.

Liquidity Risk is defined by the Bank as the current and prospective risks to earnings or capital arising from the Bank’s inability to meet its obligations when they become due without incurring unacceptable losses. It includes the inability to manage unplanned

16 decreases or changes in funding sources. It also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

The Bank’s appetite for liquidity risk is measured through the limits set for each book/fund vehicle and for each liquidity target. These limits represent the historical liquidity levels tolerated by the Bank in the past.

The Bank uses two approaches to liquidity measurement. The flow approach uses the maximum cumulative outflow (MCO) as a tool to measure liquidity gaps of maturing assets and liabilities. The stock approach is more traditional – it focuses on ratios, and generally stems from the assumption that past experience enables institutions to determine a ratio that would provide future liquidity.

The liquidity gap and balance sheet ratios are regularly measured, monitored and compared against their respective limits. These liquidity risk measures and other information on the liquidity position of the Bank are reported to ALCO weekly and to the RMC monthly.

ii. Credit Risk

Credit Risk arises from a counterparty’s failure to meet the terms of any contract with the Bank or to perform otherwise as agreed. Credit risk is found in all activities where success depends on counterparty’s, issuer’s, or borrower’s performance. It arises any time the bank funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether reflected on – or off – balance sheet. Credit risk is not limited to the loan portfolio.

The Bank uses the Standardized Approach under Circular No. 538 in computing its exposure for credit risk. Credit Risk-Weighted Asset (CRWA) is an important risk measure of the Bank, primarily because it is used to determine the Bank’s minimum capital requirement. The Bank’s minimum capital requirement for credit risk is defined as 10% of the CRWA.

Pursuant to the Bank’s policy, the credit ratings given by foreign and local rating agencies were used to determine the credit risk weights of On-balance sheet, Off-balance sheet and counter party exposures.

For all rated credit exposures, regardless of currency, the Bank used the ratings of Standard & Poor’s (S&P); Moody’s, and Fitch Ratings. On the other hand, the credit rating given by Philippine Rating Services Corporation was used for Unquoted Debt Securities, certain Corporate Bonds, Peso-denominated exposures and loans to rated domestic private entities.

The Bank neither uses credit derivatives as credit risk mitigants, nor provides credit protection through credit derivatives. The Bank has no outstanding exposure to securitization structures and other types of structured products issued or purchased by the Bank.

iii. Operational and IT Risk

The Bank adopts the definition of BSP Circular 900 or Guidelines on Operational Risk Management, to wit; “Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems; or from external events. This includes legal risk, but excludes strategic and reputational risks.”

17 The Bank further acknowledges that “operational risk is inherent in all activities, products, and services, and cuts across multiple activities and business lines within the financial institution and across the different entities in a banking group or conglomerate where the financial institution belongs.”

The Bank adopts the Three Lines of Defense framework in managing operational risk. The framework is enumerated below:

First Line of Defense – Business and Service Units take ownership of the risk by identifying, assessing and managing the risks from the new activities, processes, products and systems they do and use.

Second Line of Defense – Operational and Information Technology Risk Management (OITRM) under Enterprise Risk Management Group, provides the tools and the consistency in risk management language such as results of internal/external audit and supervisory issues raised in the BSP Report of Examination (ROE), Risk & Control Self-Assessment (RCSA), Key Risk Indicators (KRI), Loss Events Database (LED) and Analysis, Business Impact Analysis (BIA).

Guided by the Bank’s policies and procedures, rules and regulations and with the aid of Technology and Systems as well as promotion of Risk awareness and establishment of culture and ethics, OITRM assists business units in defining the target risk exposure and reporting adequate risk-related information throughout the organization.

Third Line of Defense – Internal Audit provides comprehensive assurance based on the highest level of independence and objectivity within the organization. Risk Management liaises with Internal Audit, through latter’s reports, to perform validation, and development of accurate assessment and analysis of events, incidents and indicators.

IT Risk is defined as any potential adverse outcome, damage, loss, violation, failure, or disruption associated with the use of or reliance on computer hardware, software, devices, systems, applications and networks.

IT Risk Management System enables the identification, measurement, monitoring and controlling IT-related risks covering at least the following areas:

a. Information Security b. Project Management/Development and Acquisition c. Change Management d. IT Operations e. IT Outsourcing/Vendor Management f. Electronic Products and Services

The goal of IT Risk Management is to help the Bank accomplish its business objectives by better securing the information and information systems that store, process, or transmit Bank information.

With the emergence of new and breakthrough technologies, there are pressing needs to address the increasing risk of Cyber threats and/or Cyber-attacks. A Cyber Security Framework and Roadmap is developed to protect the Bank’s critical infrastructure against these risks, as well as to promote awareness, research, and provision of technical security measures. The framework is similar to the Information Security/Information Technology Risk Management Framework and is composed of the following cycles:

18 • Identify – Identification of internal and external cyber risks • Protect – Application of protective measures on the Bank’s systems, assets and data • Detect – Ability to detect system intrusions, data breaches and unauthorized access • Respond – Proactively respond to a potential cyber-security event • Recover – Restoration from a cyber-security event by returning to normal operations and service.

(q) Additional Requirements as to Certain Issues or Issuers

i. Debt Issues

Not applicable.

Item 2. Properties

(a) Principal Properties Owned

i. Bank-owned Properties – Metro Manila

As of December 31, 2017, the Bank owns the following properties:

∂ A commercial condominium unit located at 17th Floor, Galleria Corporate Center, EDSA corner Ortigas Avenue, Quezon City; and

∂ A parcel of land with an area of 314 square meters located at No. 1861 Evangelista Street, Bgy. Pio del Pilar, Makati City, with commercial building thereon.

There are no mortgages, liens, encumbrances or any limitations on the Bank’s ownership of the foregoing properties, except that on January 24, 2018, the Bank, through its Board, has approved the sale of the following property to Robinsons Land Corporation:

∂ A parcel of land with an area of 314 square meters located at No. 1861 Evangelista Street, Bgy. Pio del Pilar, Makati City, with commercial building thereon.

ii. Leased Properties (Offices & Branches) - Metro Manila & Provincial

a. Offices OFFICE LOCATION TERM MONTHLY EXPIRY RENTAL (in Php) DATE Robinsons Bank Robinsons Galleria, EDSA Corner 5 years 225,645.00 30-Sept-2022 Corp. Basement 1 Ortigas Avenue, Quezon City Robinsons Bank Galleria Corporate Center, EDSA 5 years 1,282,160.70 31-Aug-2020 Corp. 27th-30th corner Ortigas Avenue, Quezon City Robinsons Bank Galleria Corporate Center, EDSA 4 years 481,485.82 31-Aug-2020 Corp. 26th corner Ortigas Avenue, Quezon City Robinsons Bank Galleria Corporate Center, EDSA 3 years 103,303.09 31-Aug-2020 Corp. 16th corner Ortigas Avenue, Quezon City Robinsons Bank Robinsons Equitable Tower, ADB Corp. 24th R.E.T. Ave. cor, P. Poveda Road, Ortigas 5 years 1,128,780.90 15-Dec-2018 office Center, Pasig, 1605 Metro Manila

19 b. Branches

NAME OF BRANCH LOCATION TERM MONTHLY EXPIRY RENTAL (Php) DATE Unit 7A Commercial Space, The Beacon Makati, A. Arnaiz A. Arnaiz Avenue 5 years 194,596.76 15-Apr-19 Avenue corner Chino Roces Ave, Makati City G/F Padilla Bldg. 333 Shaw Acacia Lane - Shaw Boulevard, Brgy. Bagong 5 years 171,600.00 28-Feb-20 Boulevard Silang, Mandaluyong City G/F Unit 4, El Molito Commercial Complex, Madrigal Alabang 3 years 147,591.43 28-Jun-19 Avenue cor Alabang-Zapote Road, Alabang, Muntinlupa City Level 1 Robinsons Place Angeles, McArthur Highway, Angeles 5 years 97,726.20 2-Mar-20 Balibago, Angeles City, Pampanga Unit 169-A, Robinsons Place Antipolo, Sumulong Antipolo 5 years 108,712.80 30-Nov-19 Highway/Circumference Avenue, Dela Paz, Antipolo City Level 1 - 116, 117 & 118 Robinsons Place Antique, Brgy. Antique 5 years 81,033.75 14-Jul-20 Maybato, San Jose de Buenavista, Antique G/F Don Norberto & Doña Salustiana Ty Building, 403 Asuncion - Binondo 5 years 74,900.00 31-May-19 Asuncion Street corner San Nicolas, Binondo, Manila 6780 G/F JAKA 1 Building, Ayala 10 years 236,593.86 30-Jun-20 Ayala Avenue, Makati City Level 1 C2002, The Central Citywalk, Robinsons Place Bacolod Bacolod, Lacson Street, 5 years 133,743.20 24-Jun-19 Mandalagan, Bacolod City, Negros Occidental Units 1 & 2, Apollo Mart Building, #369 Gen. Aguinaldo Bacoor 5 years 60,000.00 1-Jan-22 Highway, Talaba 4, Bacoor, Cavite G/F, ECCO/EDGARDOMCO Baguio REALTY CORP. Bldg., #43 10 years 170,170.88 30-Jun-22 Assumption Road, Baguio City G/F Stall No.1, Bais Commercial Center, Marina Bais Building, Quezon corner 1 year 40,075.24 31-May-18 Aguinaldo Street, Bais City, Negros Oriental G/F 103-1 Balagtas Town Balagtas Center, McArthur Highway, 5 years 77,389.99 26-Jul-20 Borol 1st, Balagtas, Bulacan

G/F, R & R Building, Don Balanga 5 years 75,766.56 30-Apr-19 Manuel Banzon Avenue, Doña Francisca, Balanga City, Bataan

20 G/F Stalls Numbers 2, 3 & 4 Balayan Public Market, Plaza Balayan 10 years 75,600.00 14-Feb-27 Mabini Street, Balayan Batangas Store No. 2, Ll Commercial Building, Lot 5 Block 240, Banawe 5 years 165,375.00 11-Aug-20 Banawe Street, Brgy. Tatalon, Quezon City G/F Odeste Building, P. Burgos, Batangas City 5 years 65,507.18 15-Oct-21 Brgy. 13, Batangas City Shop 3, Bollos Street corner National Highway, Brgy. Bayawan 5 years 49,500.00 31-Jul-21 Poblacion, Bayawan City, Negros Oriental G/F Triple M Commercial Building, Doña Soledad Avenue Better Living 5 years 98,456.01 31-May-18 corner Australia Street, Better Living Subd, Parañaque City G/F Unit B, The Cresent Park Residences, 30th Street corner BGC - Burgos Circle 5 years 229,296.81 31-Dec-20 2nd Avenue, Bonifacio Global City, Taguig City Shop 1 Panorama Tower, 34th BGC 34th Street Street corner Lane A, Bonifacio 5 years 335,204.10 30-Jun-20 Global City, Taguig City Unit GF 7, Trade and Financial Tower Building, 7th Avenue BGC 7th Avenue 5 years 421,429.75 30-Nov-18 corner Lane Q Road, Bonifacio Global City, Taguig City GF01 MZ01 Pacific Centre Building, 460 Quintin Paredes Binondo 5 years 249,336.23 31-Jan-19 corner Sabino Padilla Street, Binondo, Manila Ground Level, Market Market Bonifacio Global City Mall, Bonifacio Global City, 1 year 181,881.70 30-Sep-18 Taguig City G/F Tera Tower, Ortigas Bridgetowne - C5 Avenue Extension corner C5, 5 years 155,158.13 21-Oct-20 Quezon City Level 1 - 01160, Robinsons Place Butuan, Km. 3 J.C Aquino Butuan 5 years 104,096.00 19-Jan-19 Avenue, Brgy Libertad, Butuan City, Agusan del Norte G/F Franklin de Guzman Building, Km. 114 Maharlika Cabanatuan 5 years 94,500.00 30-Apr-21 Highway Zulueta District (Pob.) Cabanatuan City, Nueva Ecija Level 1 Robinsons Supercenter, Rosario Street, Lim Ket Kai Cagayan de Oro 5 years 150,848.25 14-Jul-19 Drive, Lapasan, Cagayan De Oro City G/F Gusali 888 Building, Ortigas Avenue Extension, Cainta 5 years 98,212.91 15-Mar-19 Cainta, Rizal

21 G/F FP Perez Building, National Calamba Highway, Parian, Calamba City, 5 years 120,000.00 31-Oct-21 Laguna G/F Neo Calapan Mall, LS 008, Calapan Roxas Drive, Barangay Sto. 5 years 92,000.00 31-Jan-23 Niño, Calapan, Oriental Mindoro Level 1 - 01134, Robinsons Place Pangasinan, Mac Arthur Calasiao 5 years 98,792.10 13-Feb-19 Highway, Brgy. San Miguel, Calasiao, Pangasinan G/F Dona Lolita Bldg. 1, 363 Caloocan Rizal Avenue Extension, 5 years 131,010.73 28-Feb-23 Caloocan City G/F Pelaez Commercial Arcade 1 corner Tiano Bros. and Cruz CDO-Divisoria Taal Streets, Divisoria, 5 years 78,750.00 14-Nov-21 Cagayan De Oro City, Misamis Oriental B101 Robinsons Galleria Cebu, Maxilom-Osmeña Boulevard, Cebu-Galleria 13th Avenue & Benedicto 5 years 133,570.08 5-Nov-20 Street, North Reclamation Area, Cebu City G/F Catiaoking Bldg, North Cebu Mandaue Road, Tabok, Mandaue City, 5 years 37,365.28 31-Jan-19 Cebu 2nd Level Robinsons Place Cebu Osmena Cebu, Fuente Osmeña Avenue, 5 years 88,066.92 30-Jun-22 Cebu City G/F Robinsons Cybergate, Don Cebu, Garcia - Gil Garcia corner J. Llorente 5 years 76,042.15 17-Feb-19 Llorente Street, Capitol Site, Cebu City G/F 2308 Natividad Building, Chino Roces Avenue Chino Roces Avenue 5 years 107,347.42 31-Jul-18 Extension Extension, Makati City G/F & Mezzanine, Genato Building, 250 P. Tuazon Cor. Cubao - P. Tuazon 5 years 137,388.00 14-Sep-20 15th Avenue, Cubao, Quezon City D. Guevara G/F RL Building, 50 D. Guevara 5 years 90,040.70 31-May-18 Mandaluyong Street, Mandaluyong City Guanzon Building, Perez Blvd, Dagupan 5 years 108,148.04 31-Dec-20 Dagupan City, Pangasinan Level 1 - 01302 Robinsons Place Dasmariñas, E. Dasmariñas Aguinaldo Hi-way corner 5 years 134,326.50 14-Nov-21 Governor's Drive, Pala-Pala, Dasmariñas, Cavite Door 1 & 2, Edward V. A. Lim Davao Building, Sta. Ana Avenue, 5 years 86,438.82 30-Nov-20 Davao City HAW Building, T. Monteverde Davao - Monteverde 5 years 137,812.50 30-Sep-21 Avenue, Davao City

Level 1, Unit 109, Robinsons Davao Cybergate 5 years 106,029.00 7-May-21 Cybergate Davao, J.P Laurel Ave, Davao City

22 G/F EWELL Square Bldg., Del Del Monte Avenue Monte Ave corner Biak-na-Bato, 5 years 150,236.57 30-Sep-21 Quezon City Franda Building, McArthur Dolores - SFDO Highway, Barrio Dolores, City of 5 years 150,893.60 20-Jun-21 San Fernando, Pampanga G/F Cebu Pacific Airline Domestic Road Operations Center Building, 5 years 68,052.14 31-Jul-19 Domestic Road, Pasay City Stall AF 25-27 Robinsons Dumaguete, Dumaguete South Dumaguete Road corner Perdices Street, 5 years 114,500.10 6-May-20 Dumaguete City, Negros Oriental G/F JCA Building, No. 1166 E. E. Rodriguez Sr. Ave Rodriguez Sr. Avenue, New 5 years 140,490.64 15-Jun-18 Manila, Quezon City G/F IBM Plaza Building, Eastwood City, E. Rodriguez Jr. Eastwood City 3 years 536,000.00 31-Jan-21 Avenue, Bagumbayan, Quezon City G/F Insular Life Building, 462 EDSA Caloocan EDSA near corner Boni Serrano 5 years 92,625.00 16-Apr-22 Street, Caloocan City. Level 1 Padre Faura Wing, Ermita Robinsons Place Ermita, 5 years 136,870.50 8-May-19 Ermita, Manila Unit 104, Civic Place Condominium, 2301 Civic Drive, Filinvest, Alabang 5 years 48,938.00 30-Nov-21 Filinvest Corporate City, Alabang, Muntinlupa City G/F Robinsons Place, Natividad General Santos Street corner J. Catolico 5 years 69,733.30 4-Oct-18 Avenue, General Santos City. Level 1 - 155 & 156 Robinsons Place General Trias Mall, General Trias Antero Soriano, EPZA-Bacao 5 years 143,185.90 28-Feb-21 Diversion Road, Brgy. Tejero, General Trias, Cavite G/F New Solid Realty Inc. Gil Puyat Ave. Building, 357 Sen. Gil Puyat 5 years 166,171.86 14-Aug-21 Avenue, Makati City Level 1 L1 136 & 137 Robinsons Place Iligan, Iligan 5 years 67,200.00 31-Jul-22 Barangay Tubod, Iligan City, Lanao Del Norte 2nd Floor Space No. 212-213, Robinsons Ilocos Norte, Valdez Ilocos Norte 5 years 144,145.26 31-Dec-20 Center, Brgy. 1, San Nicolas, Ilocos Norte Unit 189-190, G/F Robinsons Iloilo Place Iloilo, Corner Mabini-Del 5 years 153,382.00 31-Mar-19 Leon Streets, Iloilo City, Iloilo

G/F Robinsons Place Imus, Imus 5 years 191,733.30 20-Dec-18 Emilio Aguinaldo Highway, Imus, Cavite City

23 Level 1 – Unit G-17 B, Robinsons Place Jaro, E. Lopez Jaro 5 years 113,324.90 31-May-21 Street, Brgy. San Vicente, Jaro, Iloilo G/F Mendoza Building, 834 J. JP Rizal St. - Makati P. Rizal Street corner E. Zobel 5 years 132,300.00 30-Apr-20 Street, Makati City G/F NZ Business Center (NZBC) Building, JY Perez Kabankalan 5 years 38,500.00 30-Aug-18 Highway, Kabankalan City, Negros Occidental G/F Torres Building, 321 Katipunan Katipunan Avenue, Loyola 5 years 134,400.00 30-Sep-21 Heights, Quezon City G86-G87 Robinsons Place Las Piñas, 345 Alabang-Zapote Las Piñas 5 years 117,254.00 24-Sep-19 Road, Barangay Talon, Las Piñas City G/F South Park Heights, 262 Las Piñas - Pamplona Alabang-Zapote Road, 5 years 119,235.38 31-Dec-20 Pamplona, Las Piñas City G/F, Yuzon Commercial Legazpi City Building, Quezon Avenue, 5 years 115,780.14 30-Sep-20 Legazpi City, Albay G/F, Office 1, Man Tower Legazpi Street, Legazpi Building, 153 Legazpi 5 years 129,654.00 28-Oct-18 Makati Street, Legazpi Village, Makati City G/F Robinsons Place Lipa, Expansion Wing, J.P. Laurel Lipa 5 years 77,282.15 13-Jan-20 Highway, Mataas na Lupa, Lipa City, Batangas G/F AZDEMARK Building, 11 Lucena 1 year 72,747.15 30-Sep-18 Quezon Avenue, Lucena City Unit 102 Robinsons Luisita, Luisita Tarlac McArthur Highway, San Miguel, 5 years 51,958.20 31-Oct-18 Tarlac City Stalls A & B #143 Maginhawa Maginhawa St. Street, Barangay Teachers 5 years 112,000.00 30-Oct-21 Village, Quezon City L/G Unit LG026, Robinsons Magnolia Town Magnolia Town Center, Aurora 5 years 191,008.80 12-Aug-19 Center Boulevard, Quezon City G/F Galleria Corporate Center, Main Office Branch EDSA corner Ortigas Avenue, 5 years 406,244.50 30-Sep-22 Quezon City Level 1 – 01127, Robinsons Town Mall Malabon, #5 Malabon Governor Pascual Avenue 5 years 136,138.00 19-Jan-19 corner Crispin Street, Tinajeros, Malabon City Level 1 – 01123 Robinsons Place Malolos, Mc Arthur Malolos 5 years 160,165.50 19-Jan-19 Highway, Barangay Mabolo, Malolos, Bulacan

24 VC Chan Bldg. No. 8 Bayan- Marikina Bayanan Avenue, Concepcion 5 years 87,696.00 31-Oct-21 Uno, Marikina City Lower G/F Cyber Sigma, Lawton Avenue, Bonifacio McKinley West 5 years 118,376.00 1-Jul-22 South, Taguig City

G01 & G02, Robins Design Meralco Avenue Center, 31 Meralco Avenue, 5 years 197,341.99 15-Jun-20 Ortigas, Pasig City G/F EMCCO Building, McArthur Highway corner Malhacan Meycauayan 5 years 92,955.57 30-Jun-18 Road, Calvario, Meycauayan City, Bulacan Unit 101, Tower 1 Oceanaire Residences, Sunshine Drive MOA Complex 5 years 111,840.00 31-May-20 corner Road 23, Coral Way, MOA Complex, Pasay City G/F Joval 1 Bldg. #52 National Muntinlupa Bayan Highway Putatan, Muntinlupa 5 years 85,000.00 16-May-22 City G/F Unit 102 "R" Place Building, N.S. Amoranto Sr. #255 N.S. Amoranto Sr. 5 years 73,173.48 31-Mar-18 Avenue Avenue, Quezon City G/F Crown Hotel Building, Peña Naga 10 years 114,865.34 30-Nov-20 Francia Avenue, Naga City G/F, Rooms 2 & 3, Sky Freight Building, Sky Freight Center, Ninoy Aquino Avenue 5 years 191,008.13 15-May-19 Ninoy Aquino Avenue, Parañaque City G/F Expansion Building, Robinsons Novaliches, Quirino Novaliches 5 years 127,189.99 14-Aug-21 Highway, Brgy. Pasong Putik, Novaliches, Quezon City G/F 1370 Rizal Avenue Olongapo Extension, East Tapinac, 5 years 102,375.00 14-Nov-20 Olongapo City, Zambales G/F Limketkai Building, Ortigas Avenue corner Roosevelt Ortigas Greenhills 5 years 122,764.03 14-Mar-20 Street, Brgy. Greenhills, San Juan City G/F Ozamis Insular Life Building, Don Anselmo Bernard Ozamis Avenue corner Angel Medina 5 years 38,000.37 31-Jul-18 Avenue, Ozamis City, Misamis Occidental 580 - 584 Padre Rada Street, P. Rada, Tondo 5 years 145,860.75 31-Mar-18 Tondo, Manila Unit 220-222, 2/F, Robinsons Palawan Place Palawan Mall, Puerto 5 years 153,792.00 23-May-19 Princesa City, Palawan G/F Cementina Corporation Building, 160 A. Arnaiz Avenue Pasay - Libertad 5 years 90,000.00 16-Jun-20 corner Cuenca Street, Pasay City

25 G/F 111 Paseo de Roxas Paseo de Roxas Building, Legazpi Street corner 5 years 232,647.00 30-Apr-18 Paseo de Roxas, Makati

G/F Marius Arcadia Building, C. Pasig - C. Raymundo 5 years 77,118.00 31-Dec-22 Raymundo Avenue corner Pag- Asa Street, Pasig City L/G Robinsons Metro East, Pasig - Metro East Marcos Highway, Barangay De 5 years 145,530.00 30-Jan-19 la Paz, Pasig City Units G5-G6, Ground Floor, Gaisano Capital - Passi, Passi 5 years 49,449.53 17-Dec-21 Simeon Aguilar Street, Passi City, Iloilo Upper G/F, Robinsons Pioneer Cybergate Center 1, Pioneer Pioneer Cybergate 5 years 126,995.85 30-Jun-21 Street, Mandaluyong City

G/F Q.C Avenue Mall, Quezon Avenue cor. Scout Borromeo Quezon Avenue 5 years 102,000.00 19-Dec-22 St., South Triangle, Quezon City RS137-05 Robinsons Townville Regalado Avenue Regalado Fairview, Quezon 5 years 127,338.75 28-Feb-20 City G/F Robinsons North Tacloban, Robinsons North Brgy. Abucay, Tacloban City, 5 years 67,626.00 31-Dec-22 Tacloban Leyte Level 1 Unit 101 Robinsons Place Naga, Roxas Avenue Robinsons Place corner Almeda Highway, Brgy. 5 years 72,720.00 31-Mar-22 Naga Triangulo, Naga City, Camarines Sur G/F MCCM Bldg. 311 Roosevelt Roosevelt Avenue Avenue, San Francisco Del 5 years 121,246.75 28-Feb-23 Monte, Quezon City Level 1-1133B, Robinsons Place Roxas, Pueblo de Panay, Roxas 5 years 133,314.30 1-Dec-18 Barangay Lawa-an, Roxas City, Capiz G/F Units 3, 4 & 5 Samsons Square Bldg, Samson Road Samson Road 5 years 98,154.00 30-Sep-21 corner Dagohoy Street, Caloocan City Level I Robinsons Starmills, Candaba Gate, Olongapo- San Fernando 5 years 113,664.50 31-Jan-23 Gapan Road, San Jose, San Fernando City, Pampanga G/F Octagon Building, San San Miguel Miguel Avenue, Ortigas Center, 7 years 316,100.00 30-Nov-24 Pasig City G/F Estrellado Building, Paulino San Pablo 5 years 92,610.00 31-Oct-19 Street, San Pablo City, Laguna G/F Space 102, ETG Business Center, A. Mabini Street, San Pedro 10 years 63,000.00 15-Nov-26 Barangay Poblacion, San Pedro City, Laguna

26 Level 1-01103, Robinsons Santiago Place Santiago, Barangay 5 years 121,264.00 13-Mar-19 Mabini, Santiago City, Isabela G/F AD Center Square, Amang Santolan - Pasig Rodriguez corner Evangelista 5 years 100,498.06 15-Mar-19 Street, Santolan, Pasig City

G/F, Unit G-104, 88 Corporate Sedeño Salcedo Center, #141 Sedeño corner 5 years 262,184.70 15-Aug-18 Village Valero Street, Salcedo Village, Makati City G/F Pelbel Building I, #2019 Shaw Boulevard 5 years 72,037.35 31-Jul-18 Shaw Boulevard, Pasig City G/F Filamco Building, #1220- Soler 1222, Soler corner Masangkay 5 years 170,170.88 30-Nov-18 Streets, Binondo, Manila Level 1 Robinsons Sta. Rosa Market, Old National Highway, Sta Rosa 5 years 23,374.65 30-Apr-20 Bo. Tagapo, Sta. Rosa City, Laguna Sta. Rosa-Tagaytay Road, Sta. Sta. Rosa Estates 2 8 years 150,491.25 1-Oct-22 Rosa City, Laguna GF Unit 3, Sierra Makiling Commercial Complex, Sto. Tomas 5 years 70,000.00 14-Sep-21 Maharlika Highway, Brgy. San Antonio, Sto. Tomas, Batangas Units B13 & B17, JAKA Plaza Sucat Mall, Dr. A. Santos Avenue, 5 years 133,389.64 15-Dec-18 Parañaque City Robinsons Place Tacloban, Level 1-00103, National Tacloban 5 years 131,614.00 31-Jan-19 Highway, Tabuan, Marasbaras, Tacloban City Level 2, 00210 Summit Ridge, General Aguinaldo Highway, Tagaytay 5 years 74,520.00 14-Jul-20 National Road, Brgy. Maharlika, Tagaytay City, Cavite G/F Castelcelo Building 1, C. Gallares Street corner J. S. Tagbilaran 5 years 99,587.58 30-Sep-19 Torralba Street, Poblacion II, Tagbilaran City, Bohol Level 1 – Unit 167 Robinsons Place Tagum National Highway, Tagum 5 years 84,756.10 9-Dec-20 Brgy. Visayan Village, Tagum, Davao del Norte Red Ribbon Uptown Building, Taytay Manila East Road, Barangay 5 years 95,425.92 15-Jun-19 San Juan,Taytay, Rizal JSB Building, Tomas Morato Tomas Morato Avenue corner Scout Delgado 10 years 203,385.45 31-May-23 Street, Quezon City G/F, Lui Building, Bonifacio Tuguegarao Street, Centro 04, Tuguegarao 5 years 116,100.00 28-Feb-20 City, Cagayan Valley G/F S-Plaza Building, McArthur Urdaneta Highway, Urdaneta, 5 years 100,845.59 15-Sep-21 Pangasinan

27 Unit A South Supermarket, Valenzuela McArthur Highway, Karuhatan, 5 years 84,983.68 14-Nov-20 Valenzuela City

LS1-08-2, Xentro Mall Vigan, Vigan Quezon Avenue, Brgy. VIII, 5 years 103,200.00 31-Oct-22 Vigan City, Ilocos Sur

G/F M & L Building, Visayas Avenue corner Road 1, Quezon Visayas Avenue 5 years 158,015.81 31-Jan-19 City

G/F Prosperity West Center West Avenue Building, 92 A West Avenue, 5 years 112,000.00 28-Feb-18 Quezon City Francisco Santos Building, 138 White Plains Katipunan Avenue, Barangay 5 years 119,070.00 1-May-20 Saint Ignatius, Quezon City G/F, Wilson Corporate Center, Wilson St. - Wilson Street, Greenhills, San 5 years 194,736.78 31-May-20 Greenhills Juan City

All lease contracts have renewal options upon their termination under terms and conditions mutually acceptable to the Bank and the lessors.

c. Robinsons Bank MBO

OFFICE LOCATION TERM MONTHLY EXPIRY RENTAL (in Php) DATE Lipa - MBO L1 – 62-63/Unit ID No. 01062, 5 years 49,280.00 16-May-21 G/F, Robinsons Place Lipa, J. P. Laurel Highway, Mataas na Lupa, Lipa City, Batangas

iii. LSB-owned Properties - Provincial Branches

a. Legazpi Branch

Rizal St., corner Mabini St. Brgy Pigcale, Legazpi City 100 and 72

b. Guinobatan branch

Paulate St., Pobalcion, Guinobatan Albay 294

iv. LSB Leased Properties (Head Office & Branches) - Provincial

a. Head Office

OFFICE LOCATION TERM MONTHLY EXPIRY RENTAL (in Php) DATE Head Office Legazpi City 15 years 172,797.00 16-Aug-2026

28 b. Branches

NAME OF LOCATION TERM MONTHLY EXPIRY BRANCH RENTAL (in Php) DATE Daraga Branch Daraga, Albay 10 years 50,000.00 31-Dec-2018 Tabaco Branch Tabaco City 10 years 30,000.00 30-Jun-2022 Polangui Branch Polangui Albay 10 years 30,000.00 20-Dec-2019 Sorosogon Branch Sorsogon City 10 years 44,000.00 27-Oct-2027 Albay Branch Albay District,Legazpi City 15 years 61,467.00 16-Aug-2026 Daet Branch Daet,Camarines Norte 15 years 30,000.00 30-Apr-2027 Virac Branch Virac,Catanduanes 5 years 48,000.00 31-Dec-2021 Masbate Branch Masbate City 6 years 63,157.90 14-Jul-2022 Naga Branch Naga City, Camarines Sur 5 years 80,000.00 16-Apr-2019 Lucena Branch Lucena City,Quezon 10 years 55,000.00 15-Oct-2026 Pampanga Branch San Fernando City, 5 years 60,000.00 12-May-2022 Pampanga

c. MBOs

OFFICE LOCATION TERM MONTHLY RENT EXPIRY (in Php) DATE Goa Goa,Camarines Sur 5 years 20,000.00 30-Aug-2021 Calauag Calauag City,Quezon 5 years 8,000.00 31-Aug-2021

All lease contracts have renewal options upon their termination under terms and conditions mutually acceptable to LSB and its lessors.

(b) Limitations on Properties

There are no mortgages, liens, encumbrances or any limitations on the Bank’s ownership of the foregoing properties, except that the property located at No. 1861 Evangelista Street, Bry. Pio del Pilar, Makati City which was sold by the Bank to Robinsons Land Corporation is subject of a Contract to Sell, the consideration of which has not yet been fully paid.

(c) Description of Property the Bank Intends to Acquire in the Next 12 Months

There are no plans to acquire properties within the next twelve (12) months. However, the Bank will lease properties to serve as sites for its branches. These prospective sites are either being presently identified or currently the object of preliminary negotiations with the lessors.

Item 3. Legal Proceedings

Except for cases or proceedings which are incidental to its business such as suits for sums of money, foreclosures, writs of possession, employee relations, and other cases arising from loan transactions and operations, the Bank has no material pending legal proceedings for or against it.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of the security holders during the fourth (4th) quarter of the year covered by this report.

29 PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer's Common Equity and Related Stockholder Matters

(a) Market Information

i. Principal market where the equity is traded

Not applicable. The Bank’s equity is not listed or traded in any Exchange.

ii. Market Value

Not applicable.

(b) Holders

The Bank has an authorized capital stock of Php 15 billion divided into 1,500,000,000 common shares at Php10.00 par value per share. The Bank has no preferred shares.

The following are the stockholders of record as of March 31, 2017: Name of Stockholder Common Total Par Value % To Total Shareholdings Issued Capital Stock JG Summit Capital 719,986,468 10 60% Services Corporation Robinsons Retail 479,988,780 10 40% Holdings, Inc. Ignacio Mamaril, Jr. 19,887 10 0% Vicente Pang 4,854 10 0% Lance Y. Gokongwei 1 10 0% Frederick D. Go 1 10 0% Elfren Antonio S. Sarte 1 10 0% Robina Y. Gokongwei- 1 10 0% Pe Patrick Henry C. Go 1 10 0% Omar Byron T. Mier 1 10 0% Angeles Z. Lorayes 1 10 0% Esperanza S. Osmeña 1 10 0% Hermogenes S. Roxas 1 10 0% Roberto S. Gaerlan 1 10 0% David C. Mercado 1 10 0%

(c) Dividends

The Bank has not declared any dividends in the last two (2) years.

This non-declaration of dividends is part of the Bank’s Capital Build-Up Program to meet BSP’s Minimum Capitalization requirement under BSP Circular No. 854 Series of 2014. Salient points of the Bank’s Capital Build-Up Program includes: Non-declaration of dividends in (5) years (starting in 2015) until the required minimum capital level of Php15 30 billion is achieved; and shareholders’ capital infusion in case the Bank’s internally generated funds would not be enough to meet the Php15 billion requirement within the prescribed period.

Apart from the above, there are no more restrictions that limit the Bank’s ability to declare and pay dividends on the common shares. Any dividend declaration, however, of the Bank shall be subject to the approval by the BSP and other appropriate regulatory bodies.

(d) Recent Sales of Unregistered or Exempt Securities, Including Recent Issuance of Securities Constituting an Exempt Transaction

There were no unregistered securities sold by the Bank in the past three (3) years.

However, in 2015, additional common shares were issued by the Bank to its controlling stockholders as a result of increase of its capital stock. The Bank being the issuer, the additional common shares were exempt securities under Section 9 (e) of the Securities Regulation Code.

Also, in 2017, the Bank issued Long-Term Negotiable Certificates of Deposits (LTNCDs) in the amount of Php4,182,320,000. As a bank, its LTCNDs are exempt securities under Section 9 (e) of the Securities Regulation Code. All LTCNDs were listed with Philippine Dealing & Exchange Corp. (PDEx) as mandated by the BSP under Section X233.9 d. of the Manual of Regulation for Banks (MORB).

(e) Free Float Level

Not applicable.

Item 6. Management's Discussion and Analysis or Plan of Operation

(a) Plan of Operations and Future Prospects

The Bank aims to be one of the top banks in the Philippines, by offering innovative and competitive financial products and services to its clients. To achieve this, the Bank has rolled out a five-year strategic plan titled “Roadmap 2020” in 2015 to guide all of its employees and units in achieving its goals. The roadmap covers: refocusing of strategies; rebranding; structure reorganization of key support units; process improvement; expanding lending and branch network; product development; and fully exploring business opportunities within its target markets. The Roadmap 2020 has three phases namely (i) Capacity Building, (ii) Core Income Growth, and (iii) Expanded Business Ventures.

The Bank executed Phase 1 (Capacity Building) of the Roadmap 2020 in 2015 and 2016. In 2015, capital equivalent to the unissued shares from Bank’s existing authorized capital stock of Php 6.1 billion was infused to the Bank. Starting 2016, the Bank focused on Phase 2 (Core Income Growth) and by 2017, the Bank entered Phase 3 (Expanded Business Ventures). In 2017, the Bank issued Php 4.8 billion LTNCD to diversify the maturity profile of the Bank’s funding sources and to support medium-term expansion initiatives and general corporate purposes.

For 2018, the Bank aims to generate core income by increasing loan volume to Php 71.9 billion and growing deposits to Php 113.2 billion. Part of the Bank’s strategic thrusts for the year include engineering new products and services, such as Bancassurance and credit card business; accelerating digitization through enhanced IT infrastructure to support new digital products, Robinsons Bank Personal Online Banking and mobile application; and reaching greater market coverage by opening 19 new branches and installing 55 new ATMs

31 Global economic activity will continue to firm up in 2018, following the strong growth momentum in 2017. The International Monetary Fund (IMF) revised upward by 0.2 percentage point to 3.9% the growth forecasts for both 2018 and 2019, reflecting the favorable global financial conditions and the expected impact of the tax policy changes in the US. Advanced economies are expected to keep their growth momentum. Among advanced economies, growth in the third quarter of 2017 was higher than projected in the fall, notably in Germany, Japan, Korea, and the United States. Key emerging market and developing economies, including Brazil, China, and South Africa, also posted third-quarter growth stronger than the fall forecasts. Emerging and developing Asia is also projected to grow by 6.5% in 2018 and 2019. The Association of Southeast Asian Nations (ASEAN) remains stable and an attractive destination for investment.

The Philippine economic outlook also remains positive. In 2017, the Philippine GDP grew by 6.7%, backed by the robust services sector, strong government spending, and sustained export recovery. However, the drop in the private constructions spending, post-election impact, and plateauing business process outsourcing (BPO) sector slightly stymied the country’s economic growth target of 7.0%-8.0% for 2017. For 2018, the Philippine economy is expected to sustain its robust economic growth momentum and continue to be the fastest growing economy in the ASEAN. The Asian Development Bank (ADB) upgraded the Philippine GDP growth forecasts for 2018 following the continued growth in the government’s infrastructure spending in 2017. The World Bank (WB) and ADB forecast the Philippines to continue to improve with 6.7% and 6.8% economic growth in 2018, respectively. According to the National Economic Development Authority (NEDA), the Philippines is poised to achieve upper middle-income status as early as 2019 amid sustained robust growth. In this positive environment, the Philippine financial services sector along with Robinsons Bank is poised to benefit on the demographic sweet spot opportunities arising from a young population and rising per capita incomes.

The Bank intends to capitalize on the Philippines’ strong economic performance by investing in the growing corporate, middle-market and consumer markets. The Bank will continue increasing its loan and investments securities portfolio by strengthening market presence and producing new products. By the first half of 2018, the Bank will commercially launch the Robinsons Bank UNO and DOS Credit Cards. With this development, the Bank sees its asset base doubling to Php200 billion by 2020.

(b) Past Financial Conditions and Operating Highlights

2017 vs. 2016

The Group’s total assets grew by 35.18% to Php104.91 billion from Php77.61 billion which is mainly attributable to the significant increase in the loan portfolio and investment securities supported by funding growth. This is through its aggressive marketing strategy that is in line with the Group's business plan under “Roadmap 2020”.

∂ Due from BSP and Interbank Loans Receivable/Securities Purchased under Resale Agreement increased by Php2.60 billion and Php2.65 billion, respectively, from Php13.42 billion and Php677.83 million, respectively, as of December 2016. On the other hand, Cash and Other Cash Items and Due from Other Banks decreased by Php45.10 million and Php270.31 million, respectively, from Php1.68 billion and Php4.10 billion, respectively, as of December 2016.

∂ Financial Assets at Fair Value Through Profit or Loss went up by 1780.08% or Php45.57 million.

32 ∂ Available for Sale Investments went up by Php7.46 billion partly due to the reclassification of Held to Maturity Investments amounting to Php3.22 billion.

∂ Loans and Receivables registered growth of 48.20% at Php57.65 billion from the level of Php38.90 billion from the previous year.

∂ Property and Equipment increased to Php586.60 million or 14.34% due to expansion.

∂ Deferred Tax Asset – net was higher by Php123.28 million, while Other Assets decreased by Php536.17 million. Consolidated Liabilities increased by 41.41% from Php65.64 billion in December 2016 to Php92.82 billion in December 2017.

∂ Total Deposit Liabilities was at Php89.98 billion, this was Php26.68 billion higher compared to the levels in 2016. This was due to increase in Demand Deposits and Savings Deposits by Php833.18 million and Php21.94 billion, respectively, and issuance of the LTNCD of Php4.15 billion.

∂ Managers’ Check and Accrued Expenses increased by Php449.87 million in 2017. Total equity accounts stood at Php12.09 billion from Php11.97 billion or an improvement of Php125.11 million attributed to the current period’s net income of Php307.39 million, improvement/increase in Net Unrealized Loss on Available for Sale Securities, Accumulated Translation Adjustments and Remeasurement Losses on Retirement Funds.

2016 vs. 2015

Consolidated Total Assets reached Php77.61 billion, 34.60% or Php19.95 billion higher compared to the Php57.66 billion levels in 2015.

∂ Due from BSP and Interbank Loans Receivable/Securities Purchased under Resale Agreement grew by Php3.50 billion and Php580.83 million respectively to Php13.42 billion and Php677.83 million respectively as of December 2016 from Php9.92 billion and Php97.00 million in the previous year. Conversely, Cash and Other Cash Items and Due from Other Banks decreased by Php17.89 million and Php599.48 million from Php1.70 billion and Php4.69 billion as of December 2015.

∂ Financial Assets at Fair Value Through Profit or Loss was lower by 50.10% or by Php2.57 million.

∂ Available for Sale Investments went up by Php3.54 billion or 43.17% and now at Php11.74 billion.

∂ Held to Maturity Investments at Php3.55 billion grew by 29.09%.

∂ Loans and Receivables level at Php38.90 billion registered growth of 41.10% or Php11.33 billion.

∂ Property and Equipment went up by 9.03% due to expansion.

33 ∂ Deferred Tax Asset – net and Other Assets were higher by Php50.11 million and Php584.95 million respectively. Consolidated Liabilities went up by 43.73% or Php19.97 billion for a total of Php65.64 billion as of December 2016.

∂ Total Deposit Liabilities totaled Php63.30 billion, increased by Php19.63 billion compared to the levels in 2015. This was due to higher Demand Deposits; Savings Deposits and Time Deposits by Php2.45 billion; Php16.04 billion and Php1.15 billion, respectively.

∂ Managers’ Check and Accrued Expenses went up by Php92.69 million in 2016. Total equity accounts stood at Php11.97 billion, declined by Php20.82 million attributed to the current period’s net income of Php247.48 million, improvement/increase in Net Unrealized Loss on Available for Sale Securities, Accumulated Translation Adjustments and Remeasurement Losses on Retirement Funds.

(c) Key Performance Indicators

Definition of Ratios

Profitability Ratios:

Return on Average Assets - Net Income after Income Tax Average Total Assets

Return on Average Equity - Net Income after Income Tax Average Total Equity

Net Interest Margin - Net Interest Income Average Interest Earning Assets

Cost-to-Income - OPEX – Provision for Impairment & Credit Losses Total Operating Income

Liquidity Ratios:

Liquid Assets to Total Assets - Total Liquid Assets Total Assets

Loans to Deposit Ratio - Loans (Net) Deposit Liabilities

Asset Quality Ratios:

NPL Ratio - Non-Performing Loans (net of specific allowance) Gross Loans

NPL Cover - Allowance for Probable Losses Non-Performing Loans (gross of allowance)

34 Solvency Ratios:

Ratio of debt to equity - Total Liabilities Total Equity

Ratio of total assets to equity - Total Assets Total Equity

Interest coverage ratio - Income Before Income Tax Interest Expense

Capital Adequacy Ratios:

CET 1/ Tier 1 - CET1/Tier 1 Capital Total Risk Weighted Assets

Total CAR - Total Qualifying Capital Total Risk Weighted Assets

2017 2016 2015 Profitability (%) Return on Average Assets 0.34 0.37 0.27 Return on Average Equity 2.56 2.07 1.62 Net Interest Margin on Average Earning 3.50 3.92 4.43 Assets Cost-to-Income 83.18 82.81 79.90

Liquidity (%) Ratio of Liquid Assets to Total Assets 23.64 25.60 28.46 Loans to deposit 64.07 61.45 63.13

Asset Quality (%) NPL Ratio 0.83 0.91 1.47 NPL Cover 56.11 68.93 63.73

Solvency Ratio (%) 548.4 Ratio of debt to equity 767.53 380.93 8 648.4 Ratio of total assets to equity 867.53 480.93 8 Interest coverage ratio 30.27 53.04 42.65

Capitalization (%) Capital Adequacy Ratio CET 1/ Tier 1 18.74 20.72 31.69 Total CAR 19.62 21.37 32.46

35 Profitability

The Group’s net income of Php307.39 million resulted in a ROE of 2.56% and ROA of 0.34%. Cost-to-income ratio of 83.18% was better than 82.81% in 2016 and 79.90% in 2015 given improvements in operating income. Net interest margin was at 3.50%, lower than last year’s 3.92% with the rise in funding cost. Liquidity

Liquid assets comprised 23.64% of the Group’s total resources, lower than 25.60% in 2016 and 28.46% in 2015, with the build-up in loans and investment securities. Loans (net)-to- deposit ratio was higher at 64.07% from 61.45%. Asset Quality

NPL ratio dropped to 0.83% from 0.91% in 2016 as the Bank continued to review and clean- up past due loans. Together with the booking of loan loss reserves, NPL coverage ratio improved to 100.56% from 80.19% in 2016. Solvency Ratios

Debt-to-equity ratio for the year was computed at 767.53% higher than 548.48% in 2016 because of the surge in outstanding loans. This also raised the asset-to-equity ratio to 867.53% from 648.48% in 2016. Interest rate coverage ratio was computed at 30.27% from 53.04% in 2016. Capitalization

The Bank maintained a sound capital position given its CET 1/ Tier 1 and Total CAR ratio of 18.74% and 19.62%, respectively. The Bank’s continued profitability contributed to its capital strength as well as its capacity to regularly pay dividends to shareholders.

(d) Results of Operations

2017 vs 2016

∂ For the year ended December 31, 2017, the Group registered a net income of Php307.39 million, Php59.91 million higher compared to the Php247.48 million net income for the same period last year.

∂ Net interest income totaled Php2.98 billion, higher by 23.22% or Php562.09 million net income for the same period last year mainly due to the growth in loans portfolio and investment securities which account for the Php864.01 million and Php194.58 million increase in interest income, respectively, partly offset by decline in interest income from deposits/funds in BSP and other Banks by Php17.72 million. Total interest income grew by Php1.04 billion from Php3.07 billion in 2016 to Php4.11 billion in 2017.

∂ Other income is lower in 2017 by Php18.62 million at Php353.59 million compared to Php372.21 million for the same period last year.

36 ∂ Net service fees and commission income were at Php124.76 million and Php116.65 million for the years ended December 31, 2017 and 2016, respectively.

∂ Administrative and other operating expenses for the year 2017 amounted to Php3.12 billion, Php554.71 million higher compared to the same period last year coming from increase in Compensation and Fringe Benefits, Occupancy and equipment-related costs, depreciation and amortization and miscellaneous expenses by Php191.87 million, Php32.83 million, Php24.05 million and Php305.97 million, respectively.

∂ Total Comprehensive Income for the year ended December 31, 2017 amounted to Php125.12 million, Php145.94 million higher compared to the loss of Php20.82 million for the same period last year mainly due to lower net unrealized losses on available for sale investments and higher translation adjustments. 2016 vs 2015

∂ For the year ended December 31, 2016, the Group’s consolidated net income was at Php247.48 million, Php103.48 million higher compared to the Php144.00 million net income for the same period last year.

∂ Net interest income was at Php2.42 billion, higher by 13.70% or Php291.67 million net income for the same period last year mainly due to the growth in loans portfolio, investment securities and interbank loans receivable/SPURA which account for the Php281.97 million, Php55.68 million and Php97.29 million increase in interest income, respectively, partly offset by decline in interest income from deposits/funds in BSP and other Banks by Php58.43 million. Total interest income grew by Php376.51 million from Php2.69 billion in 2015 to Php3.07 billion in 2016.

∂ Other income grew higher in 2016 by Php90.87 million at Php372.21 million compared to Php281.34 million for the same period last year.

∂ Net service fees and commission income were at P116.65 million and Php110.01 million, for the years ended December 31, 2017 and 2016, respectively.

∂ Administrative and other operating expenses for the year 2016 amounted to Php2.57 billion, Php285.58 million higher compared to the same period last year coming from increase in Compensation and Fringe Benefits, Occupancy and equipment-related costs, depreciation and amortization and miscellaneous expenses by Php179.02 million, Php44.94 million, Php45.11 million and Php16.52 million, respectively.

∂ Total Comprehensive Loss for the year ended December 31, 2016 amounted to Php20.82 million, Php116.74 million higher compared to the loss of Php137.56 million for the same period last year mainly due to lower net unrealized losses on available for sale investments and higher translation adjustments.

37 (e) Material Changes

As to material event/s and uncertainties, the Bank has none to disclose on the following apart from those already disclosed elsewhere or presented in the accompanying audited financial statements:

∂ Any known trends, demands, commitments, events or uncertainties that will have a material impact on the issuer’s liquidity.

∂ Any events that will trigger direct or contingent financial obligation, including any default or acceleration of an obligation.

∂ Any material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company.

∂ Any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures.

∂ Any known trends, events or uncertainties that have had or that are reasonably expected` to have a material favorable or unfavorable impact on net sales/revenues/income from continuing operations.

∂ Any significant elements of income or loss that did not arise from the issuer’s continuing operations.

∂ Any seasonal aspects that had a material effect on the financial condition or results of operations.

Item 7. Financial Statements

The consolidated financial statements and schedules are hereto attached as Annex “A” and filed as an integral part of this report.

INFORMATION ON INDEPENDENT ACCOUNTANT (EXTERNAL AUDIT FEES (MC No. 14, Series of 2004)

SyCip Gorres Velayo & Co. (SGV & Co.) / Ernst & Young has been the Bank's independent accountant for more than 15 years and is again recommended for appointment at the scheduled annual stockholders' meeting. In compliance with SEC Memorandum Circular No. 8, Series of 2003, and Amendments to SRC Rule 68 on the rotation of external auditors or signing partners of a firm every after five (5) years of engagement. Mr. Miguel U. Ballelos, Jr. is the audit partner of SGV & Co./Ernst & Young assigned to the Bank commencing the audit of financial statements for the year 2017.

Representatives of SGV & Co./ Ernst & Young are expected to be present at the annual stockholders meeting to respond to any matter that may be pertinently raised during the meeting. Their representative will be given the opportunity to make a statement if they so desire.

38 (a) Audit and Audit-Related Fees

The Bank paid the following audit fees to Sycip Gorres Velayo & Co. (SGV) for the fiscal year indicated:

Payment (Php) Fiscal Year Audit Fee Same Fiscal Subsequent Unpaid (Php) (Php) Year Year 2014 1,986,608.00 - 1,986,608.00 - 2015 2,435,673.00 492,800.00 1,942,873.00 - 2016 2,269,162.00 518,856.00 1,750,306.00 - 2017 2,412,845.00 1,309,758.00 731,325.00 371,762.00

(b) Tax & Other Fees

For the fiscal year 2017, the Bank paid total amount of Php1,281,840.00 to Reyes Tacandong & Company in connection with (a) outsourcing of IT audit activities; and (b) vulnerability assessment and penetration testing of the Bank’s systems.

(c) Audit Committee’s Approval Policies and Procedures for the above services

The engagement of the services of the Bank’s external auditor is evaluated by its Audit Committee. Consistent with the provisions of the Code of Corporate Governance, the appointment of the external auditor nominated by the Board through the Audit Committee is subject to the approval by the shareholders.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

The Bank has no disagreements with any of its external auditors in any matter of accounting principles, practices, or financial disclosures.

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

(a) Incumbent Directors

LANCE Y. GOKONGWEI, Chairman of the Board, Filipino, 51 years old He serves as the Chairman of the Board, Chairman of the Executive Committee, and a member of the Trust Committee of the Bank. He is also the President, Director and Chief Operating Officer (COO) of the JG Summit Holdings Inc. He also acts as the President, Director and Chief Executive Officer (CEO) of Cebu Air Inc. (since 1997), CPAir Holdings,Inc. (since 2007), JG Summit Petrochemical Corporation (since 2002), and Universal Robina Corporation (since 2002), among others. In 2015, he was Instutional Investor’s Best CEO for Asia and was also named as Best CEO by Finance Asia. He graduated Summa Cum Laude from the University of Pennsylvania’s Management and Technology Program with double degrees in Finance from Wharton School and Applied Sciences from the Penn Engineering School.

39 FREDERICK D. GO, Vice-Chairman, Filipino, 48 years old He is the Vice Chairman of the Board and also serves as the Vice Chairman of the Executive Committee of the Bank. Presently, he is a Director at JG Summit Holdings Inc. and Universal Robina Corporation (since 2001), the President, Director and COO of the Robinsons Land Corporation (since 2006), Robinsons Realty and Management Corporation (since 2005), Robinsons Properties Marketing & Management Corporation (since 2005), and Robinsons Inn, Incorporated (since 2012). Moreover, he is also the Chairman of the Philippine Retailers Association (since 2013). He has a Bachelor of Science degree in Management Engineering from the Ateneo de Manila University.

ELFREN ANTONIO S. SARTE, President and CEO/Director, Filipino, 58 years old He is the President and Chief Executive Officer of the Bank, and is a member of its Executive Committee, Risk Management Committee and IT Steering Committee. Prior to joining the Bank in November 2014, he was the President, Director and CEO of Allied Savings Bank (2013 to 2014); Consumer Finance Group Head (2013) and Head of Consumer Credit and Collection Division (2010 to 2013) of ; and Head of Consumer Credit Risk Management Division (2006 to 2010), Credit Services Division (1996 to 2006) and Credit Investigation and Appraisal Division (1995 to 1996) of Union Bank of the Philippines. He was also a Manager at the Credit Information Bureau (1983 to 1985) and currently holds directorships in Bankers Association of the Philippines and Bancnet. He has a Bachelor of Science degree in Industrial Management Engineering minor in Mechanical Engineering from the De La Salle University.

ROBINA GOKONGWEI-PE, Director, Filipino, 56 years old She is the Chairman of the Bank’s Trust Committee. She is presently a Director of JG Summit Holdings Inc., the President and COO of Robinsons Retail Holdings, Inc., as well as Senior Vice President and Group General Manager of Robinsons Department Store, Robinsons Appliances, Robinsons Supermarket, Handyman, Robinsons Specialty Stores, and Toys “R” Us. She also served as President of The Manila Times (1989 to 1998). She has a Bachelor of Arts degree in Journalism from the New York University.

PATRICK HENRY C. GO, Director, Filipino, 48 years old He is the Vice Chairman of the Bank’s Trust Committee and a member of its Corporate Governance Committee. He is also the Executive Vice President and Senior Managing Director of JG Summit Petrochemical Corp., JG Summit Olefins Corp. and URC Packaging Division, and a Director of JG Summit Holdings Inc. He was also the General Manager of Litton Mills (1996-1997). He has a Bachelor of Science degree in Management from the Ateneo de Manila University and took The General Manager Program from the Harvard Business School.

OMAR BYRON T. MIER, Director, Filipino, 71 years old He was appointed as a Director of the Bank in 2015. Apart from sitting as a Director, he also serves as a member of the Bank’s Audit Committee, Corporate Governance Committee and Risk Management Committee, and alternate member of its Executive Committee. Mr. Mier is also a Director of LSB, the Bank’s subsidiary, and is a member of its Risk Management Committee. Before joining the Bank, he holds around four decades of experience in the banking industry, including Citibank N.A., where he served as Country Risk Manager in Manila (1983 to 1985), Public Sector Group Head (1985 to 1987), Country Risk Officer in Malaysia (1992 to 1995), Head of Risk Management Group and World Corporate Group Head (1992 to 1995); Deutsche Bank, as Deputy General Manager and Corporate Banking Head (1995 to 2002); and Philippine National Bank (2005-2014), where he held various senior positions the last of which as President and CEO. He has a Bachelor of Science degree in Business Administration Major in Accounting, Bachelor of Arts degree in Economics, and Master of Arts in Economics from the University of the Philippines. He is also a Certified Public Accountant.

40 ROBERTO S. GAERLAN, Independent Director, Filipino, 66 years old He is the Vice Chairman of the Bank’s Audit Committee, Chairman of the Related Party Transactions Committee, and member of its Risk Management Committee. His career in banking spans over three decades, working with First United Bank (1973 to 1979) and with United Coconut Planters Bank (1979 to 2003) where he was the Vice President for Branch Banking (2001 to 2003). He graduated with a Bachelor of Arts degree in Economics from the University of Santo Tomas and Advanced Bank Management from the Asian Institute of Management.

HERMOGENES S. ROXAS, Independent Director, Filipino, 67 years old He is the Chairman of the Bank’s Corporate Governance Committee and a member of its Audit and RPT Committee. Mr Roxas is also a Director of LSB where he chairs its Corporate Governance and Audit Committee, and sat as the vice-chair of its Risk Management Committee. He has more than three decades of experience in banking and has held various senior positions at Commercial Banking & Trust Company and United Coconut Planters Bank and its subsidiaries. He was also the President of UCPB Savings Bank; a Director at UCPB Leasing & Finance Corp., UCPB Foreign Exchange Corp., UCPB Capital Corp., UCPB Rural Bank, and UCPB Securities Inc. He has a Bachelor of Science degree in Business Administration from the University of the Philippines.

ANGELES Z. LORAYES, Independent Director, Filipino, 68 years old She is the Chairman of the Bank’s Audit Committee, Vice Chairman of the Corporate Governance Committee, and a member of the RPT Committee. She honed her skills in banking by spending her career in Citibank as Head of its Financial Analysis and Engineering Department (1971 to 1978). She also headed the Credit Policy and Supervision of Equitable PCI Bank (1978 to 2000) and Philippine National Bank (2005 to 2010). She has a degree in Business Administration from the University of the Philippines and earned MBA units at the Ateneo Graduate School of Business.

ESPERANZA S. OSMEÑA, Independent Director, Filipino, 67 years old She is the Chairman of the Bank’s Risk Management Committee, and a member of the RPT Committee, the Corporate Governance Committee and Trust Committee. She has held various senior positions at Asian Savings Bank (1984-1987) and Equitable PCI bank and its subsidiaries (1988-2000). She was an Executive Vice President at Equitable PCI Bank (1998-2000), and was Director at PCI Capital Inc., PCI Leasing Inc., PCI Insurance Brokers Inc., and Bankard Inc (1988-1999). She graduated with a Bachelor of Arts degree in Commerce from the Colegio de Santa Anna in Zaragoza, Spain.

DAVID C. MERCADO, Independent Director, Filipino, 67 years old He is the Chairman of the Bank’s IT Steering Committee, Vice Chairman of the Risk Management Committee and a member of the Audit Committee. He has more than three decades of experience in banking and has held various senior positions in Allied Banking Corporation and United Coconut Planters Bank. At UPCB, he became their Assistant Vice President- Account Management Division (1986 to 1987), Assistant Vice President - Deposit Services Department (1987 to 1993), Vice President and Regional Branch Head (1993 to 2004), Vice President and Head of Branch Banking Group (2004 to 2006) and lastly, as First Vice President of Consumer Banking Group (2006 to 2011). He earned his Business Administration degree from the Philippine School of Business Administration. He is also a Certified Public Accountant.

The independent directors have met and continue to meet all the qualifications and possess none of the disqualifications of an Independent Director under the Bank’s Code of Corporate Governance, Section 38 of the Securities Regulation Code and relevant BSP rules.

41 (b) Advisors

JAMES L. GO, Member, Filipino, 79 years old He joined the Bank as Senior Board Adviser starting on August 24, 2016. He had years of experiences in banking with then PCIBank and Far East Bank. He is currently the Chairman and Chief Executive Officer of JG Summit Holdings, Inc. and Oriental Petroleum and Minerals Corporation. He is also the Chairman of Robinsons Land Corporation, Universal Robina Corporation, JG Summit Petrochemical Corporation, and JG Summit Olefins Corporation. He is the Vice Chairman of Robinsons Retail Holdings, Inc. and a director of Cebu Air, Inc., Marina Center Holdings Private Limited, United Industrial Corporation Limited and Hotel Marina City Private Limited. He is also the President and Trustee of the Gokongwei Brothers Foundation, Inc. He has been a director of the Philippine Long Distance Telephone Company (PLDT) since November 3, 2011. He is a member of the Technology Strategy Committee and Advisor of the Audit Committee of the Board of Directors of PLDT. He was elected a director of Manila Electric Company on December 16, 2013. Mr. Go received his Bachelor of Science degree and Master of Science degree in Chemical Engineering from Massachusetts Institute of Technology, USA.

JOHNSON ROBERT G. GO, JR., Member, Filipino, 53 years old He presently serves as Director of JG Summit Holdings, Inc., Universal Robina Corporation and Robinsons Land Corporation, among others. He has served as President of Robinsons Convenience Stores, Inc. (2002) and as Vice President of Robinsons Daiso Diversified Corp. (2010). His banking experience spans around 17 years, when he was elected as a Director of the Bank. He has Bachelor of Arts degree in Interdisciplinary Studies from the Ateneo de Manila University.

BRIAN M. GO, Member, Filipino, 43 years old He is the Finance Director of JG Summit China Operations (since 2003). After obtaining a degree in Economics from Harvard University, he started his career as consultant in Booz Allen & Hamilton (1996 to 1997) and Robinsons Retail Group (1998). He had a brief stint in the Bank’s Corporate Planning Department and also became the Head of Corporate Planning of Digitel Telecommunications Phils., Inc. (1998 to 2002). Afterwards, he became the Managing Director at Digitel One (2002); then as Chief Finance Officer at Ding Feng Real Estate (2003); and served as General Manager at Universal Robina Corporation (URC) – China (2007).

LISA Y. GOKONGWEI-CHENG, Member, Filipino, 49 years old She is the President and Director of Summit Media (2011 to present) and General Manager of Gokongwei Brothers Foundation Inc. (2011). She has held various senior positions and directorships in the group namely: Robinsons Bank Corporation; Summit Internet Investments, Inc. (2000), Jobstreet Philippines (2000 to present), JE Holdings, Inc. (2002), Robinsons Retail Holdings, Inc. (2002 to present), Itech Global Business Solutions, Inc. (2010), Hongkong- China Foods Co. (2013), and as Vice-President and Director of Summit- App Addictive Philippines, Inc. (2000). She was also a Vice President at Metromedia Times Corporation (1993 to 1997) and as Project Manager at Digital Communications (1995 to 1999). She has a Bachelor of Arts degree from Ateneo de Manila University, and obtained her Master’s degree in Journalism at Columbia University in 1993.

(c) Executive Officers

Angelito V. Evangelista, 65, Filipino, Executive Vice President, and the Bank’s Chief Operating Officer. Mr. Evangelista has been in the banking industry for more than 45 years. He started his career with Insular Bank of Asia and America (IBAA) and has held senior management positions in PCIBANK and PCI Savings Bank. He was part of the original team that organized Robinsons Savings Bank Corporation in 1997 and he has sat as

42 Director of Bancnet Inc., LSB and Meycauyan College (Independent Director). He graduated from the University of the East where he earned his Bachelors of Science degree in Business Administration, Major in Accounting. He also has a Masters degree in Business Administration from the University of the Philippines Diliman. Over the years, he has attended numerous trainings and seminars conducted in the Philippines and abroad such as the ATM Debit & Prepaid Forum held in Las Vegas, Nevada, U.S.A. and the Bank Administration Institute’s (BAI) Retail Delivery Conference in Boston, Massachusetts, U.S.A, among others. He is also a Certified Public Accountant.

Eric B. Santos, 58, Filipino, Executive Vice President, the Bank’s head of Consumer and Regional Banking Segment. He has been with the banking industry for more than 38 years. He held senior management positions in United Coconut Planters Bank (UCPB), UCPB Savings Bank, Planters Development Bank and Premiere Development Bank. He joined the Bank in 2012 as its Chief Credit Officer. He concurrently headed the Consumer Finance Group of the Bank and a director of LSB in 2012 to 2013 and was re-elected as such in 2016. He graduated from Polytechnic University of the Philippines (PUP) with a degree of Bachelors of Science in Accountancy. He has attended extensive trainings on corporate governance, risk management, anti-money laundering, leadership, credit, and equity and debt financing.

Mykel D. Abad, 49, Filipino, Executive Vice President of the Bank and concurrently the President of its subsidiary, LSB. Prior to becoming the President of LSB, he has held senior management positions in UCPB, International Bank Exchange, and Robinsons Savings Bank. He finished his Bachelor of Science degree in Statistics from the University of the Philippines and he has a Masters degree in Applied Business Economics from the University of Asia and the Pacific. He has attended numerous trainings abroad such as the Youth Marketing Seminar conducted in Kuala Lumpur Malaysia and ICAAP Master Class and Asset Liability Management seminars, which were both conducted in Singapore. He also underwent extensive trainings on anti-money laundering, corporate governance, treasury operations, and risk management.

Ma. Regina N. Lumain, 55, Filipino, Executive Vice President, and the head of the Bank’s Treasury Group. Prior to joining the Bank in 2000, she held senior management positions in PCI Bank and PCIB Savings Bank (Treasury Department). She graduated cum laude from the University of the East with a Bachelor of Arts degree in Economics. Over the years, she had attended extensive trainings and seminar on treasury related topics like the Currency Swaps & Interest Rate Option and Fixed Income Market Salesman seminar conducted by the Securities and Exchange Commission (SEC). She also attended trainings on corporate governance, anti-money laundering, BSP issuances, Camels Rating, risk management, market reading, and asset and liability management.

Miguel Angel G. Gonzalez, 59, Filipino, Executive Vice President, and head of the Bank’s Corporate Banking Segment. He obtained his Bachelor of Science degree in Industrial Engineering from the University of the Philippines, Diliman and his Masters in Business Management from the Asian Institute of Management. Prior to joining the Bank, he held senior management positions as an Assistant Vice President in Citibank (1984-1989), as Senior Vice President and head of Credit Supervision (1989-1992) and Branch Banking Group (1992-1994) of Land Bank of the Philippines, as Senior Vice President and head of Credit and Market Risk Management Group of Union Bank of the Philippines(1994-2007), as Country Head of Genpact (Philippine Branch), and as First Senior Vice President and Chief Credit Officer of Philippine National Bank (2010-2017). He is both a licensed Real Estate Broker and Appraiser (8th placer in the May 2016 Real Estate Appraisal Licensure Examination). He is also a Fellow of the Institute of Corporate Directors (ICD).

43 Andro M. Yee, 53, Filipino, Senior Vice President, is the Bank’s Community Banking Group Head. He joined the Bank in 1997 and became the Bank’s Compliance Officer (concurrent Chief Audit Executive) (1997-2009), Chief Audit Executive (2009-2010), and Controller (2010-2013). He also sat as a Director of Bancnet, Inc. (2009-2011). Over the years, he has had numerous trainings and seminars on anti-money laundering, compliance, corporate governance, internal auditing, trust operations and investment management, IT security, corporate fraud control, and risk based audit. He earned his Bachelors of Science degree in Business Administration, Major in Accounting, from the University of the Philippines in the Visayas. He is a Certified Public Account.

Evie B. Abraham, 65, Filipino, Senior Vice President and Human Resource Management Group Head and the concurrent HRMG Head of its subsidiary, LSB. Ms. Evie has been in the banking industry since 1972. She started her career as a supervisor in the Bank of the Philippine Islands (BPI). After that, she held key positions in PCI Bank, Corporation, and Chinatrust Phils. She joined the Bank in 2008 where she immediately headed its Human Resource Group. She attended numerous and extensive trainings and seminars involving human resource management, corporate governance, anti-money laundering, among others. She earned her Bachelors of Science in Business Administration degree, Major in Accounting, from Silliman University and finished the Strategic Business Economics Program from the University of Asia and Pacific.

Juanito Andres A. Henson, 53, Filipino, Senior Vice President, and currently heading the Bank’s Lending Segment-Account Management Group 1. He started his professional career as a management trainee in Malayan Insurance Company and later moved to PCIBank and handled its Lending and Credit Policy Supervision and Review Department. He has been with the Bank since 1998, first as a Senior Manager to now as Senior Vice President. He obtained both his Bachelor of Science degree in Business & Economics as well as his Masters degree in Business Administration from the De La Salle University. He has had extensive trainings on anti-money laundering, forgery and fraud detection, and has finished the Excell Finance for Senior Executives program by the Asian Institute of Management (AIM).

Exequiel T. Tua, 61, Filipino, Senior Vice President, and the Bank’s Chief Risk Officer and the concurrent Chief Risk Officer of its subsidiary, LSB. He has been in the banking industry for more than 30 years. Prior to joining the Bank in 2006, he has worked with several financial institutions such as , PAIC Bank, Planters Development Bank, National Commercial Bank, Philippine National Bank, and Citibank Savings, Inc. He also had extensive trainings on anti-money laundering, information security, risks and compliance trainings, Basel, and has completed the Asian Institute of Management’s (AIM) Enterprise Risk Management program in 2011. He obtained his Bachelor of Science degree in Economics from University of Sto. Tomas and finished his Masters degree in Business Administration from the De La Salle University.

Agnes Theresa A. Salvador, 57, Filipino, Senior Vice President, and currently heads the Bank’s Transaction Banking Group. She has more than 30 years of banking experience. She formerly held senior management positions as Cash Management Services Head of Philippine Bank of Communication (PBCom), Country Product Management Head of JP Morgan, and Cash Management Solutions Head of Rizal Commercial Banking Corporation (RCBC), among others. She has a Bachelor of Science degree in Architecture from the University of the Philippines and has attended and finished the Strategic Business Economic Program from University of Asia Pacific.

Salvador DH. Paps, 55, Filipino, Senior Vice President, is the head of the Bank’s Retail Banking Group. His experience in the banking sector now span for more than 30 years. He worked as the Bank’s Business Center Head, Cluster Head, and Area Head before

44 becoming the Bank’s Retail Banking Group Head in 2016. Prior to joining the Bank, he held senior management positions in ABN-AMRO Savings Bank and BA Savings Bank. He earned his Bachelor of Arts degree in Economics from San Beda College and has attended extensive trainings on customer experience management, business building and account servicing, and Internal Capital Adequacy Assessment Process (ICAAP) training to name a few.

Eric C. Macalintal, 53, Filipino, Senior Vice President, and the Bank’s Chief Information Technology Officer. Before joining the Bank in 2011, he has worked with EastWest Bank as Vice President of their Project Management Office (PMO) and with Premiere Bank where he headed their information technology department. He obtained his Bachelors of Science degree in Mathematics from the University of Sto. Tomas. He also has Masters of Science degree in Computer Science from Ateneo Professional School. He has had extensive training on Islamic Finance and anti-money laundering conducted by Malaysian Institute of Management. He also attended training on Applied Finance in Singapore Management University.

Roel S. Costuna, 48, Filipino, Senior Vice-President, and the Bank’s Corporate Secretary and Head of its Legal Services Group. Before joining the Bank in 2014, he was the Chief Legal Counsel and Head of Legal & Documentation Division of (2007-2013), the Legal Head & Assistant Corporate Secretary of Chinatrust Commercial Bank Corporation (2005-2007), and Head Documentation and Opinion Team of International Exchange Bank (1997-2005). He has also worked with the firms of Castillo Laman Tan Pantaleon & San Jose Law Offices and Sycip Gorres Velayo & Co. - Tax Division. Committed to his continuous development, he has attended various seminars on corporate governance, anti-money laundering, mandatory continuing legal education, including a One-Year Training Program sponsored by Trust Institute of the Philippines, as well as the Asia Pacific In-House Counsel Summit held in Hong Kong. He obtained his Bachelor of Laws (LlB) degree from the University of the Philippines, College of Law, in Diliman, Quezon City in 1994. He took and passed the Bar Examinations given that same year wherein he was ranked 12th place. He obtained his Bachelor of Arts degree (Political Science), wherein he graduated Magna Cum Laude, from the University of Eastern Philippines. He has been in the practice of banking and allied laws, corporate and litigation for almost 25 years.

Rosario C. Marcelo, 48, Filipino, Senior Vice President, Head of the Bank’s Lending Segment-Account Management Group 2. Ms. Marcelo has significant amount of banking experience (more than 25 years) especially in branch lending and investment banking. Prior to joining the Bank in 2012, she has held senior management positions in Planters Development Bank, BDO Unibank as their Credit Portfolio Review Head, and in EastWest Bank as their Remedial Management Head. At one point, she also sat as Director of LSB (2013-2016). She obtained her Bachelors of Science degree in Business Administration from the University of the Philippines, Diliman, and has had several extensive trainings in banking and other related fields.

Maria Teresa Ponce-Sanchez, 55, Filipino, Senior Vice President, is the head of the Bank’s Treasury-Domestic Trading Group. She has worked with PCIBank’s Treasury Department for 14 years (1985-1999) before joining the Bank’s Treasury Group in 2000. In her more than 30 years of experience, she has attended numerous trainings regarding treasury related topics like Hedging & Hedge Accounting (SGV&Co.), Derivatives & Treasury risk Seminar (SGV&Co.), Bloomberg Swap Manager Training (Bloomberg Training). She also underwent certification program as Fixed Income Salesman by the Securities and Exchange Commission and Treasury Certification Program by Ateneo BAP. She also was the treasurer of LSB (2014-2015). She obtained her Bachelors of Science degree in Business & Economics from the De La Salle University, Manila. 45 Romel D. Meniado, 43, Filipino, First Vice President, and the Bank’s Chief Compliance Officer. Prior to joining the Bank in 2009, he has worked with the BSP for 12 years (1996- 2008) as Bank Examiner. He also was the Bank’s Assistant Controller (2009-2010) and Chief Audit Executive (2010-2013) before becoming as the Bank’s Chief Compliance Officer. He obtained his Bachelors of Science degree in Accounting from the Polytechnic University of the Philippines and has a Masters degree in Business Administration from the De La Salle University, Taft. Throughout his career, he has attended numerous trainings and seminars on corporate governance, PFRS 9, anti-money laundering, finance, FATCA, strategic compliance, trust operations, Basel, money market trading, derivatives, risk management, financial investigation, among others. He is also a Certified Public Accountant.

Cynthia C. Bautista, 51, Filipino, First Vice President, and the concurrent Chief Audit Officer of the Bank and LSB. She started her audit career in 1989 and before joining the Bank in 2013, she held senior audit positions in (2011-2012) and Planters Bank (2012-2013). She also worked as an Internal Quality Review Officer of AIG Philam Savings Bank (2008-2009) and as an Operational Risk Management Officer (2001-2005) and Credit Risk Management Officer (2005-2008) of PBCom. She earned her Bachelors of Science degree in Business Administration, Major in Accounting, from the Pamantasan ng Lungsod ng Maynila (PLM). Over the years, she had attended extensive trainings on cyber-security, corporate governance, anti-money laundering, quality assurance, risk- based audit, risk management, and Basel II, among others. She is also a Certified Public Accountant.

Ma. Elizabeth P. Aquino, 57, Vice President, and is the Bank’s Trust and Investment Group Head. Before joining the Bank in 1997, she formerly worked as a trust officer in several institutions like Tokio Marine Malayan Insurance Corp., East West Banking Corp., and . To enhance her competence, she attended extensive trainings such as the One Year Trust Course and Advance Investment Management Account (IMA) conducted by the Trust Institute Foundation of the Philippines, UP Law’s First Institute of Estate Planning, and Securitization Course conducted by the Bankers Association of the Philippines. She also attended seminars on trust updates, investment, wealth management, retirement planning, as well as trainings on other bank related fields like anti- money laundering and Financial Consumer Protection Act. She is a certified investment solicitor and UITF trainer. She obtained his Bachelors of Science degree in Business Administration from the University of the Philippines.

(d) Nominees for Election as Directors and Independent Directors

Nominees as Person who Nominees as Person who Director nominated Independent nominated and Director Relationship with Nominee Lance Y. Elfren Antonio S. Angeles Z. Lorayes Elfren Antonio S. Gokongwei Sarte Sarte Chairman Mr. Frederick D. Go Elfren Antonio S. Esperanza S. Elfren Antonio S. Vice Chairman Sarte Osmeña Sarte Elfren Antonio S. Elfren Antonio S. Hermogenes S. Elfren Antonio S. Sarte Sarte Roxas Sarte Director/President & CEO

46 Robina Y. Elfren Antonio S. Roberto S. Gaerlan Elfren Antonio S. Gokongwei-Pe Sarte Sarte Director Patrick Henry C. Go Elfren Antonio S. David C. Mercado Elfren Antonio S. Director Sarte Sarte Omar Byron T. Mier Elfren Antonio S. Director Sarte

(e) Involvement in Legal Proceedings

To the knowledge and information of the Bank, none of the above-named directors, nominees, and executive officers have been involved in any of the following events during the past five (5) years: i. Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; ii. Any conviction by final judgment, including the nature of the offense, in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses; iii. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and iv. Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or other organized trading market or self-regulatory organization, to have violated a securities or commodities law or regulation and the judgment has not been reversed, suspended, or vacated.

For the past five (5) years, the Bank, its affiliates, subsidiaries, directors and officers, have not been involved in any legal proceedings that would affect their ability, competence or integrity, and/or would involve a material or substantial portion of their property before any court of law, quasi-judicial body or administrative body in the Philippines or elsewhere, except in the usual routine cases directed against the Bank, arising from the ordinary conduct of its business.

All legal proceedings involving the Bank are efficiently and competently attended to and managed by a group of eight (8) in-house lawyers who are graduates of reputable law schools in the country. For its external counsels, the Bank retains the services of the following respected law firms:

∂ Romulo Mabanta Buenaventura Sayoc & Delos Reyes ∂ Valerio & Associates Law Office ∂ Atty. Filmore C. Gomos Law Office ∂ Atty. Rodrigo Talledo Law Office ∂ Balgos Gumaru & Jalandoni Law Office ∂ Guzman & San Gabriel Law Office

47 (f) Significant Employees

The Bank highly values its human resources. It expects each employee to do his share in achieving the Bank‘s set goals; in return, the Bank has in placed policies and programs for the protection and growth of its employees.

(g) Family Relationship

1.) Mr. Lance Y. Gokongwei, Ms. Robina Y. Gokongwei-Pe, and Ms. Lisa Y. Gokongwei- Cheng are siblings.

2.) Mr. James L. Go is the uncle of Mr. Lance Y. Gokongwei, Ms. Robina Y. Gokongwei- Pe, and Ms. Lisa Y. Gokongwei-Cheng.

3.) Mr. Frederick D. Go, Mr. Patrick Henry C. Go, Mr. Brian M. Go, are cousins of Mr. Lance Y. Gokongwei, Ms. Robina Y. Gokongwei-Pe, and Ms. Lisa Y. Gokongwei-Cheng.

Item 10. Executive Compensation

(a) Summary Compensation Table

I N M I L L I O N P E S O S Name Annual Salary Bonus Others Total

2016 78,443,879.45 19,350,399.07 97,794,278.52 Executives (Headcount - 22)

2017 94,328,962.71 22,800,778.34 117,129,741.05 Executives (Headcount - 27)

2018 (estimate) 124,979,082.12 31,244,770.53 156,223,852.65 Executives (Headcount – 34)

(b) Compensation of Directors

The independent directors are entitled to a per diem of Php15,000.00 for attendance at each of the Board meeting, and Php5,000.00 for attendance at each of any committee meeting. The directors who belong to the controlling family receive Php500.00 per diem for attendance at each meeting in the Board or any committee. The President and Chief Executive Officer does not receive per diem for attendance at the Board or any committee meetings.

The aggregate amount paid by the Bank to its Directors, excluding the above executives and other officers, amounted to approximately Php2,249,500.00 in 2016 and Php2,476,000.00 in 2017. For the year 2018, it is estimated that approximately Php2,367,000.00 will be paid to the Directors.

48 49 (d) Changes in Control

There is no change in control of registrant and no change in control has occurred since the beginning of the last fiscal year.

There are also no arrangements known to the Bank, which may result in a change of control of registrant.

Item 12. Certain Relationships and Related Transactions

The Bank, in its regular course of trade and business, enters into transactions with its Directors, Officers, Stockholders, and Related Interests (DOSRI) which mainly involve loans which are duly disclosed to the BSP in accordance with the MORB.

All transactions of the Bank, whether with DOSRI, related parties or non-related parties, are conducted and entered in the Bank’s best interest and on “arm’s length basis”.

There are no parties that fall outside the definition of “Related Parties” under SFAS/IAS No. 24 with whom the Bank or its related parties have a relationship that enables such parties to negotiate terms and material transactions that may not be available from other more clearly independent parties on an “arm’s length basis”.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance

(a) Organizational Structure

50 (b) Board of Directors

The Board of the Bank represents the owners’ interests in the Bank’s objective to sustainably increase shareholder value and to ensure the long-term success of the business. The Board is actively responsible in ensuring that the Bank is properly managed in attaining this objective. In addition to fulfilling the Board’s obligations for increased shareholder value, it also has the responsibility to protect the interests of other stakeholders which include, among others, customers, employees, suppliers, financiers, government and community in which it operates.

The Board is primarily responsible for the observance of governance, including business and risk strategies, organization, and financial soundness of the Bank. Corollary to setting the policies for the accomplishment of the corporate objectives, it shall provide an independent checking and effective oversight of the Management.

Composition of the Board

The Board is composed of 11 members elected by the stockholders, five of whom are independent. All members of the Board are Filipinos and possess all the qualifications and none of the disqualifications to hold a directorship as prescribed under the Corporation Code and existing rules and regulations of the BSP and the Securities and Exchange Commission (SEC). They all passed the fit and proper test for the position of a director of the Bank, taking into account their integrity and probity, physical and mental fitness, competence, relevant education, financial literacy and training, diligence and knowledge and expertise. They are known for their independence and professionalism, and for making decisions with complete fidelity to the Bank while cognizant of their responsibilities under existing applicable laws, rules, and regulations.

The Board determines the appropriate number of its members to ensure that the number thereof is commensurate with the size and complexity of the Bank’s operations. To the extent practicable, the members of the Board of Directors have been selected from a broad pool of qualified candidates. A sufficient number of qualified non-executive members had been elected to promote independence of the Board from the views of the senior management. For this purpose, non-executive members of the Board are those who are not part of the day-to-day management of banking operations.

The five independent directors (ID) are independent of Management and are free from any business or other relationship which could or could reasonably be perceived, to materially interfere with their exercise of independent judgment in carrying out their responsibilities as a director. They hold no interests or relationships with the Bank that may hinder their independence from the Bank or management or will interfere with the exercise of independent judgment in fulfilling their responsibilities. They are compliant with all the qualifications required of an independent director and none of the disqualifications as provided in the MORB.

(c) Board Meetings and Supply of Information

As provided for in the Bank’s By-Laws, the Board schedules and holds regular monthly meetings and convenes special meetings when necessary. The Corporate Secretary provides the directors the notice, agenda, and meeting materials prior to each meeting. Proceedings of the meetings are properly documented and duly minuted.

In accordance with the rules and regulations of the SEC and the BSP, the members of the Board attend regular and/or special meetings in person or through teleconferencing and video conferencing which allows the directors to actively participate in the deliberations on

51 matters taken. The Bank ensures availability of teleconferencing facilities if and when a director cannot physically attend due to unavoidable circumstances. A director may also attend the meetings by submitting written comments on the agenda to the Corporate Secretary and the Chairman prior to the meeting pursuant to Subsection X141.1 of the MORB.

In 2017, all members of the Board have substantially complied with the attendance requirement and actively participated in the deliberations on matters taken up during the regular and/or special meetings.

Name of Directors Number of Number of Percentage of Meetings Held Meetings Meetings During the Year Attended Attended % 1.) Lance Y. Gokongwei 13 13 100.00 2.) Frederick D. Go 13 12 92.00 3.) Elfren Antonio S. Sarte 13 13 100.00 4.) Robina Y. Gokongwei-Pe 13 10 77.00 5.) Patrick Henry C. Go 13 12 92.00 6.) Omar Byron T. Mier 13 13 100.00 7.) Angeles Z. Lorayes (ID) 13 13 100.00 8.) Hermogenes S. Roxas (ID) 13 13 100.00 9.) Esperanza S. Osmeña (ID) 13 11 85.00 10.) David C. Mercado (ID) 13 12 92.00 11.) Roberto S. Gaerlan (ID) 13 13 100.00

(d) Board Committees

In order to increase efficiency and gain deeper focus in specific areas, the Board has created committees, which are relative and consistent to the size, complexity of operations, long-term strategies, and risk tolerance level of the Bank. The scope, authority and responsibilities of these committees are defined in their respective board-approved charter which is subject to regular review and updated at least annually or whenever there are significant changes.

The Board has appointed the members of the committees taking into account the optimal mix of skills and experience which would allow them to fully understand, be critical and objectively evaluate the issues. To promote objectivity, the Board has appointed independent directors and non-executive directors to the greatest extent possible and ensures that such mix will not impair the collective skills, experience and effectiveness of the committees. Each of these committees maintains appropriate records (e.g., minutes of meeting) of their deliberations and decisions, subject to notation and/or confirmation of the Board. The records document the committees’ fulfillment of their responsibilities and facilitate the assessment of the effective performance of their functions which is regularly and periodically conducted.

The Board has established and delegated responsibilities to seven committees, namely: the Executive Committee, the Corporate Governance Committee, the Risk Management Committee, the Audit Committee, the Trust Committee, the Related Party Transactions Committee, and the IT Steering Committee.

1. Executive Committee The Bank’s Executive Committee has been created as the highest credit approving body of the Bank after the Board. The Committee provides the necessary approvals for

52 applications, deviations and other loan transactions. Resolutions of the Committee may be overruled only by the Board.

The Executive Committee provides decisions regarding applications for critical loan accounts and deviations that require careful deliberation. Approvals made are in compliance with internal policies and those required under existing laws, rules and regulations. Decisions made are influenced by the latest profitability and delinquency figures of an account or loan product.

Executive Committee Number of Number of Meetings Percentage of Members Meetings Held Attended Meetings Attended During the Year % 1. Lance Y. Gokongwei 50 43 86.00 2. Frederick D. Go 50 43 86.00 3. Elfren Antonio S. 50 45 90.00 Sarte 4. Omar Byron T. Mier 50 50 100.00

2. Corporate Governance Committee In order to proactively assist the Board in its fulfillment of its corporate governance responsibilities and ensure transparency in all of the Bank’s transactions, it created the Corporate Governance Committee. The Committee ensures the Board’s effectiveness and due observance of corporate governance principles, best practices and guidelines which are necessary components of what constitute sound strategic business management. It generates awareness of corporate governance within the Bank.

In particular, the Committee oversees the development and implementation of corporate governance principles and policies, reviews and evaluates the qualifications of the persons nominated to the Board as well as those nominated for election to other positions requiring appointment by the Board, decides the manner by which the Board’s performance is evaluated and assists the Board in the periodic performance evaluation of the Board and its committees and executive management, and oversees the development and implementation of professional development programs for directors and officers.

The Committee is composed of five members, three of whom are independent directors including the Chairperson and Vice-Chairperson. The Committee holds regular meetings and may call for special meetings as deemed necessary. To properly evaluate its performance, the Committee meetings are properly and duly minuted.

Corporate Governance Number of Number of Percentage of Committee Members Meetings Held Meetings Meetings Attended During the Attended % Year 1. Hermogenes S. Roxas 12 12 100.00 (ID) 2. Angeles Z. Lorayes (ID) 12 12 100.00 3. Esperanza S. Osmeña 12 10 83.33 (ID) 4. Patrick Henry C. Go 12 10 83.33 5. Omar Byron T. Mier 12 12 100.00

3. Risk Management Committee To aid the Board in efficiently carrying out its function on risk management, it created the Risk Management Committee. This committee oversees the development and oversight of

53 the Bank’s risk management program including Trust Group and ensures an acceptable level of risk while minimizing losses. The Committee oversees the system of limits to discretionary authority that the Board delegates to management, supervises the system and ensures its effectiveness, provides and set limits and ensures that these are properly observed and that immediate corrective actions are taken should breaches occur.

The Board has appointed five members of the Committee who possess a broad-range of expertise as well as adequate knowledge of the Bank’s risk exposures which enables them to develop appropriate strategies for preventing more losses when they occur. The committee members meet regularly and may call for special meetings whenever necessary.

Risk Management Number of Number of Meetings Percentage of Committee Members Meetings Held Attended Meetings Attended During the % Year 1. Esperanza S. Osmeña 12 10 83.33 (ID) 2. David C. Mercado (ID) 12 12 100.00 3. Roberto S. Gaerlan (ID) 12 12 100.00 4. Elfren Antonio Sarte 12 12 100.00 5. Omar Byron T. Mier 12 11 91.67

4. Audit Committee The Board has constituted an Audit Committee to provide oversight over the Bank’s financial reporting policies, practices and control, and internal and external audit functions. In particular, the Committee aids the Board in monitoring and evaluating the adequacy, effectiveness, and efficiency of the Bank’s internal controls system. Further, the Committee assists the Board in fulfilling its oversight responsibilities with regard to the integrity of the Bank’s financial reporting process, the independence and performance of the Bank’s external and internal auditors, the compliance to corporate governance policies and guidelines, and the Bank’s compliance with regulatory requirements.

To carry-out its mandate, the Committee has explicit authority to investigate any matter within its terms of reference, full access and cooperation by management and full discretion to invite any director or executive officer to attend its meetings, and adequate resources to enable it to effectively discharge its functions.

As prescribed under existing rules and regulations, the Committee is composed of, to the greatest extent possible, sufficient number of independent and non-executive board members. All members of the Committee, including the Chairperson who is an ID, possess the required qualifications and none of the disqualifications. The Committee holds regular meetings and may call special meetings upon the request of the Chairperson or by at least two of its members, which proceedings are duly minuted.

Audit Committee Members Number of Number of Percentage of Meetings Meetings Meetings Attended Held During Attended % the Year 1. Angeles Z. Lorayes (ID) 9 9 100.00 2. Roberto S. Gaerlan (ID) 9 9 100.00 3. David C. Mercado (ID) 9 9 100.00 4. Hermogenes S. Roxas (ID) 9 9 100.00 5. Omar Byron T. Mier (Non- 9 9 100.00 voting)

54 5. Trust Committee The Trust Committee provides the overall direction and guidelines in the conduct of the Trust business, reviews plans for new investments, trust products and business development, and conducts assessment of Trust and Investments Group’s performance and operational effectiveness.

Trust Committee Members Number of Number of Percentage of Meetings Held Meetings Meetings Attended During the Year Attended % 1. Robina Y. Gokongwei- 12 11 92.00 Pe 2. Patrick Henry C. Go 12 11 92.00 3. Lance Y. Gokongwei 12 12 100.00 4. Esperanza S. Osmeña 12 10 83.00 (ID) 5. Elizabeth T. Aquino 12 11 92.00

6. Related Party Transactions Committee Pursuant to existing rules and regulations on related party transactions issued by the BSP, the Board created a Related Party Transactions Committee. This stems from the recognition of management that the Bank engages in transactions between and among related parties, which brings a need to exercise appropriate oversight and implement control systems for managing said exposures as these may potentially lead to conflict of interests if not abuses that are disadvantageous to the Bank and its depositors, creditors, and other stakeholders.

The Committee supports the Board in the exercise of appropriate oversight and implements a control system for managing exposures to related parties. It assists the Board in ensuring that transactions with related parties are handled in a sound and prudent manner and in compliance with applicable laws, rules and regulations to protect the interest of its depositors, creditors, and other stakeholders.

In particular, the Committee identifies related parties and monitors their transactions, evaluates related party transactions which are classified material and endorse the same to the Board for approval, ensures disclosure and reporting of related party transactions and oversees the implementation of a system to facilitate its functions as well as the development and periodic review of policies and procedures for related party transactions.

The Committee is composed of four members of the Board who are all independent directors. In case a member has a conflict of interest in a particular transaction, he should refrain from evaluating that particular transaction. The Chief Compliance Officer and Chief Audit Officer and/or their representatives including an executive director sit as resource persons in the said Committee.

Related Party Transactions Number of Number of Percentage of Committee Members Meetings Meetings Meetings Attended Held During Attended % the Year 1. Roberto S. Gaerlan (ID) 11 11 100.00 2. Esperanza S. Osmeña (ID) 11 9 82.00 3. Angeles Z. Lorayes (ID) 11 11 100.00 4. Hermogenes S. Roxas (ID) 11 11 100.00

55 7. IT Steering Committee In compliance with BSP Circular 808, the Board has created the Information Technology Steering Committee which oversees a safe, sound, controlled and efficient information technology operating environment that supports the Bank’s goals and objectives. In particular, the Committee, among others: reviews and monitors the performance of all IT projects; reviews the Bank’s current IT infrastructure, system performance, associated risks and other significant issues and events and institutes appropriate actions to achieve the desired results; monitors and evaluates the performance of third party service providers on all information technology initiatives subject of the service contract; and reports to the Board relevant and adequate information regarding IT performance, status of major IT projects and significant issues affecting the Bank’s IT operations.

The Committee is chaired by a non-executive and independent director, assisted by the Head of IT Group as Vice-Chairperson and executive officers of the Bank. The heads of Audit, Risk and Compliance are also invited in the regular and/or special meetings of the Committee as resource persons.

IT Steering Number of Number of Meetings Percentage of Committee Members Meeting Attended Meetings Attended Held During % the Year 1. David Mercado 12 11 91.67 2. Mr. Elfren Antonio Sarte 12 11 91.67 3. Mr. Angelito Evangelista 12 12 100.00 4. Mr. Eric Macalintal 12 12 100.00 5. Ms. Agnes Salvador 12 11 91.67 6. Mr. James Chua* 12 10 83.33 7. Ms. Irma Velasco 12 12 100.00

*Resigned February 2018

(e) Corporate Secretary

The Bank’s Corporate Secretary, who is a separate individual from its Compliance Officer, assists the Board in its duties and is responsible primarily to the corporation and its shareholders. His duties and responsibilities, among others, include assistance to the Board and the board committees in the conduct of their meetings, including preparing an annual schedule of Board and committee meetings and the annual board calendar, and assisting the chairs of the Board and its committees to set agendas for those meetings; Safe keeps and preserves the integrity of the minutes of the meetings of the Board and its committees, as well other documents such as the corporate seal, stock certificates, stock and transfer books, records, documents and papers of the Bank; Prepare ballots for annual elections and keep a complete and up-dated list of the stockholders and their addresses; Keeps abreast on relevant laws, regulations, all governance issuances, relevant industry developments and operations of the corporation, and advises the Board and the Chairman on all relevant issues as they arise. The Bank also makes sure that the Corporate Secretary annually attends relevant trainings on corporate governance and other related topics.

(f) Board Training

In accordance with the Corporate Governance Manual and Subsection X141.3 of the MORB, the Corporate Governance Committee is responsible for making recommendations to the Board on the required trainings and continuing education of the directors. Relative thereto, all members of the Board have attended the required corporate governance

56 seminar for bank directors at BSP-accredited training providers, a pre-requisite for Monetary Board confirmation. These include topics on risk and governance, audit and control, and accountability.

To remain relevant and abreast with the evolving regulations, all of the directors have attended the Anti-Money Laundering Refresher Course as required by the MORB.

(g) Board and Committee Performance Evaluation

The Bank’s Board represents the owner’s interests in its objective to continuously improve its shareholders value and to achieve a successful and long-term business. The Board is actively responsible in ensuring that the Bank is properly managed to attain this result. In addition to fulfilling its obligations for increased shareholder value, it also has the responsibility to other stakeholders which include, among others, customers, employees, suppliers, financiers, government and community in which it operates.

The Board is primarily responsible for the governance, including business and risk strategy, organization, and financial soundness of the Bank. Corollary to setting the policies for the accomplishment of the corporate objectives, it shall provide an independent check on and effective oversight of Management.

In order to increase efficiency and allow deeper focus in specific areas, the Board has created committees, which are relative and consistent to the size, complexity of operations, long-term strategies and risk tolerance level of the Bank. The scope, authority and responsibilities of these committees are defined in their respective board-approved charter which is subject to regular review and updated at least annually or whenever there are significant changes.

The Board has appointed the members of the committees taking into account the optimal mix of skills and experience which allow them to fully understand, be critical and objectively evaluate the issues. To promote objectivity, the Board has appointed independent directors and non-executive directors to the greatest extent possible and ensures that such mix will not impair the collective skills, experience and effectiveness of the committees. Each of these committees maintains appropriate records (e.g., minutes of meeting) of their deliberations and decisions, subject to notation and/or confirmation of the Board. The records document the committees’ fulfillment of their responsibilities and facilitate the assessment of the effective performance of their functions which is regularly and periodically being conducted.

In order to pro-actively assist the Board in its fulfillment of its corporate governance responsibilities and ensure transparency in all of the Bank’s transactions, it created the Corporate Governance Committee. The Committee ensures the Board’s effectiveness and due observance of corporate governance principles, best practices and guidelines which are necessary component of what constitutes sound strategic business management. It creates awareness of corporate governance within the Bank. In particular, the Committee oversees the development and implementation of corporate governance principles and policies, reviews and evaluates the qualifications of the persons nominated to the Board as well as those nominated for election to other positions requiring appointment by the Board, decides the manner by which the Board’s performance is evaluated and assists the Board in the periodic performance evaluation of the Board and its committees and executive management, among others. In this regard, annual performance evaluation of the board and board-committees is being conducted in accordance with the Bank's existing policies.

57 (h) President & CEO Evaluation

The performance of the President and CEO is evaluated as member of the Board and Senior Management where the results are discussed and approved by the Corporate Governance Committee and confirmed by the Board.

(i) Compliance System

The BSP issued Circular 747 “Revised Compliance Frameworks for Banks” as amended by Circular 972, in order to actively promote the safety and soundness of the Philippine Banking System through an enabling policy and oversight environment. Such an environment is governed by the high standards and accepted practices of good corporate governance as collectively designed by the BSP and its supervised institutions. Towards this end, a robust, dynamically-responsive and distinctly-appropriate Compliance Risk Management System has been put in place as an integral component of the Bank’s culture and risk governance framework. In this respect, it is the responsibility and shared accountability of all personnel, officers and the board of directors.

A compliance risk management system is designed to specifically identify and mitigate risks which may erode the franchise value of the Bank. Compliance is everybody’s concern and should form part of the Bank’s day-to-day operations. As a Bank employee, everyone should conduct business activities in adherence to high standards of honesty and integrity and shall abide laws, regulations, rules, standards and codes of conduct and good governance applicable to our banking activities. This may cover observing market rules, managing conflict of interest, proper accounting and recording, applying best practices, compliance with tax laws, developing new products and electronic delivery channels, providing e-banking services and may also include specific areas such as prevention of money laundering and terrorist financing. Failure to comply with regulatory requirements may bring adverse effects on our relationships with our shareholders, customers, co- employees and the market and exposures to significant losses and severe sanctions of regulatory or judicial authorities.

The Bank’s Board, in an effort to address effectively compliance risks, established the Compliance Group that will identify, measure, monitor and control such risks that the Bank is exposed or may be exposed to. This is also in the exercise of Board’s oversight function of overseeing the implementation of compliance policy, ensuring policies and procedures are followed and corrective actions are taken by the management to address breaches, failures and control deficiencies identified.

ii. Education and Trainings

The Bank is committed to continually strengthen its compliance culture through education and training. The Compliance Group in coordination with HRMG Training Department regularly conducts briefings to employees to raise the level of awareness and understanding of the principles, concepts, and elements of good corporate governance and compliance. All new employees of the Bank undergo basic orientation on Compliance System, Anti-Money Laundering (AML), Risk Awareness, and Corporate Governance.

iii. Corporate Governance Manual

The Board and its management committed themselves to the principles and best practices on corporate governance. They believe that corporate governance is a necessary component of what constitutes sound business management and therefore undertake every effort necessary to create awareness within the Bank.

58 Toward this end, the Board adopted a corporate governance framework or the Corporate Governance Manual (Manual) that embodies the rules, systems and processes in the Bank. The framework governs the performance of the Board and management of their respective duties and responsibilities to stockholders and other stakeholders. The Manual is periodically reviewed with the objective of continually aligning the Bank’s policies with the BSP and SEC circulars or issuances on corporate governance including best practices issued by the Basel Committee on Banking Supervision. This ensures that the interests of stockholders and other stakeholders are always taken into account, the directors, officers, and employees are aware of their responsibilities and the business of the Bank is conducted in a safe and sound manner.

iv. Board Compensation Policy

Board of Directors compensation is a fee or per diem in an amount as may be determined by the Board shall be paid to each director for attendance at any meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any director from serving in any other capacity and receiving compensation therefore, The Board shall fix the compensation and other remuneration of any compensation therefore. The Board shall fix the compensation and other remuneration of any Director or any other officer of the Bank should they be designated to perform executive functions or any special service to the Bank. In no case shall the total yearly compensation of directors, as such directors, exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year.

v. Dividend Policy

Subject to BSP’s approval, dividends may be declared annually or oftener as the Bank’s Board may determine. The Board, however, may only declare dividends out of its surplus profits or unrestricted retained earnings after making due provisions for the necessary reserves (losses and bad debts) in accordance with the Corporation Code, Securities Regulation Code, General Banking Law, MORB, and all regulations and circulars issued by the BSP.

vi. Whistleblowing

Employees of the Bank are encouraged to perform the duty of disclosing to their immediate superior the existing or potential violations and wrongdoings that they are or may become aware of. The Bank’s Policy on Timely Reporting of Concerns and Incidents, otherwise known as the Whistle-Blowing Policy, serves as a guide for all employees for reporting matters that breach integrity and the Bank’s Code of Conduct.

vii. Code of Ethics and Policy on Conflict of Interest

The Bank’s Code of Conduct for Employees exists to develop or pattern behavior in accordance to the Bank’s standards, to instill professional conduct, and to enforce discipline and order. The Code is implemented by the Human Resources and Management Group. Copies of the Code of Conduct are given to employees upon hiring, while seminars are conducted regularly to further expound on the subject.

59 PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

(a) Exhibits

Subsidiaries and Investments

LSB, a wholly owned subsidiary of the Bank, is a thrift bank primarily engaged in deposit- taking and lending activities. LSB was acquired in 2012 by the Bank under the BSP strengthening program for thrift and rural banks. LSB implemented various key expansion initiatives. In its nearly five decades of operating in the Bicol region, LSB took the opportunity to span its countryside reach in another fastest growing region in the country - CALABARZON. LSB is now providing financial services in Calauag, Quezon and will soon expand its scope to other nearby provinces.

As LSB continues to focus on ramping up its high-yielding loan portfolio, it acquired accreditation for providing teacher’s salary loans under the Department of Education’s Automatic Payroll Deduction System (APDS).

LSB also recognizes the important role of MSMEs in elevating the lives in the community as it aggressively rolled out its microfinance business.

In 2017, aligned with the parent bank’s core income thrusts, LSB was able to contribute Php28,183,574.00 in income versus 2016’s Php22,386,977.00. LSB also added another branch in Lucena, Quezon, bringing its total branch network to 14. LSB also has 14 ATMs to date.

Board of Directors/Officers

Directors:

1. Lance Y. Gokongwei – Chairman 2. Elfren Antonio S. Sarte – Vice Chairman 3. Omar Byron T. Mier – Member 4. Mykel D. Abad – Member 5. Angelito V. Evangelista – Member 6. Eric B. Santos – Member 7. Janette C. Gonzalvo – Member 8. Hermogenes S. Roxas – Independent Director 9. Victor V. Laynes – Independent Director

Key Officers:

1. Mykel D. Abad – President* 2. Roel S. Costuna – Corporate Secretary and Legal Unit Head 3. Aileen Mary C. Ejercito – Asst. Corporate Secretary 4. Eleanor Leni M. Ante – Treasurer 5. Exequiel T. Tua – Chief Risk Officer 6. Kareen R. Villareal – Chief Compliance Officer* 7. Cynthia C. Bautista – Chief Audit Officer 8. Evie B. Abraham – Human Resource Management Group Head 9. Ma. Socorro S. Liganor – Retail Banking Group Head 10. Erlinda O. Del Villar – Operations Head

60 11. Victor C. Dela Cruz Jr. – Lending Head* 12. Abundio B. Blanquisco, Jr. – Deputy for Operations 13. Jason-Dennis R. Sambitan – Information Technology Department Head 14. Adrian T. Llana – Credit Cycle & Operations Head 15. Carmela Monica C. Borromeo – Officer-in-Charge for Controllership 16. Rodolfo T. Quinto – Chief Security Officer

*Seconded

(b) Reports on SEC Form 17-C

The following reports have been submitted by the Bank in 2017 and 2018 through its official disclosure letters, viz:

Report Date Reported Advisory letter informing the SEC that Robinsons Bank Corporation will run a print advertisement on selected media September 11, 2017 outlets for one (1) month entitled "Robinsons Bank encourages clients to switch to EMV" Advisory letter informing the SEC that Robinsons Bank Corporation will run an advertisement on selected media September 18, 2017 outlets for one (1) month entitled "Robinsons Bank brings back Fees on Us Home Loan Promo"

Advisory letter informing the SEC that Robinsons Bank Corporation will run an advertisement on selected media October 25, 2017 outlets entitled "Robinsons Bank inaugurates McKinley West Branch, expands network even further"

Advisory letter informing the SEC that Robinsons Bank November 4, 2017 Corporation will post an advertisement in its corporate website and Facebook page, and disseminate through e-mail from November 20, 2017 and up to December 31, 2017

Disclosure regarding Robinsons Bank Corporations issuance January 19, 2018 of a press release to selected media entitled "Robinsons Bank and Pru Life UK establish Bancassurance partnership"

Certificate of Board Attendance of the Board of Directors of January 23, 2018 Robinsons Bank for the fiscal year 2017

Board of Directors Approval on the following: March 5, 2018 a) Issuance of Long-Term Negotiable Certificate of Deposit (LTNCD) with the following indicative terms:

∂ Issue Size – Php 5 billion to be issued in 1 or 2 tranches within a period of 1 year ∂ Tenor – 5.5 years ∂ Pricing – Final pricing to be determined at the time of issuance

61 ∂ Interest Period – Quarterly, 30/360 day count ∂ Purpose – To partially fund the planned asset growth; liquidity coverage ratio (LCR) management; and meet demands of investors for high yielding securities among others ∂ Denomination – As low as Php 50,000.00 and increments of Php 10,000.00 thereafter ∂ Listing – Philippine Dealing Exchange Corp. Fixed Income Board ∂ Registry – Philippine Depository & Trust Corp ∂ Arranger – ING Bank N.V. ∂ Selling Agents – To be mutually assigned by the Arranger and the Bank ∂ Timing – Within 2018 ∂ Governing Law – Philippine Law b.) Amendment of Articles of Incorporation (AOI) of the Bank to indicate in the First Article the business or trade names of the Bank in compliance with SEC Memorandum Circular No. 14, Series of 2017 dated December 8, 2017. Amendment shall be read as follows:

FIRST. That the name of the Corporation shall be –

ROBINSONS BANK CORPORATION Doing business under any of the following names and styles: RBank, RBC, Robinsons Bank, RobinsonsBank, Robinsons Bank Corp., Robinsons Commercial Bank, Rbank Corp., Rbank Corporation, RobinsonsBank Corp. c.) Amendment of Amended By-Laws of the Bank to change the date of annual stockholder’s meeting from last week of April each year to every last Wednesday of June each year. If the date of annual meeting falls on a legal holiday, the annual meeting shall be held in the next succeeding business day which is not a legal holiday. Section 2 of Article III of the Bank’s Amended By-Laws now read as follows: d.) Transfer of the date of annual stockholders’ meeting of the Bank from Wednesday, April 24, 2018 to Wednesday, June 27, 2018. Relative thereto, the following matters were likewise approved:

1. Setting the record date of the annual stockholders meeting to May 29, 2018;

2. Last day of submission of proxies, if any: June 11, 2018;

3. Validation date of proxies, if any: June 19, 2018

62 SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of Ol:IEZONCITY on_----::::aii.--' 20_. r1 4 APR 2018 By:

I

1dent & Chief Executive Officer First Vice-Presiden (Principal Executive Officer) (Comptroller I Principal Financial Officer I Principal Accounting Officer) ' ,,.

Executive Vice-President & Chief Operating Officer (Principal Operating Officer)

f APR 2018 SUBSCRIBED AND SWORN to before me this __f 4day of ____ 20_ affiant(s) exhibiting to me their Tax Identification Number, as follows:

Names Tax Identification No. LANCE Y. GOKONGWEI 116-312-586 ELFREN ANTONIO S. SARTE 107-790-157 ANGELITO V.EVANGELISTA 138-777-179 ATTY.ROEL S.COSTUNA 177-087-684 IRMA 0.VELASCO 150-387-989

Doc. No. IJi�- Page No. as : - Book No. ':£ - � - ATTY. BARBAR IRENE Y. DE LA ROSA Series of 2018: . · :: NQlery Publi for and in Quezon City Commission under App. No. 363 Exp. 12-31-18 17/F Galleria Corporate Center EDSA cor. Ortigas Ave., Quezon City Roll No. 64193/IBP No. 026679/01-12-18/RSM PTA No. 5610553/01-08-18/Quezon City MCLE Compliance No. V-0017741

63a REPUBLIC OF THE PHILIPPINES ) Quezon City ) S. S. T D CERTIFICATION

We hereby certify that the enclosed CD copy of the Audited Financial Statements (AFS) of Robinsons Bank Corporation contains the same basic or material data in the hard copies of the AFS submitted herewith.

0 IN WITNESS WHEREOF, we have hereunto set our hands this 1 4 APR 2018 , in Quezon City. ,

l�A:CO Executive Vice-President First Vice-President & Chief Operating Officer Comptroller

SUBSCRIBED AND SWORN to before me this .1 4 AP� 2018 , affiants exhibiting to me their proofs of identification, as follows:

Name Proof of Identification Angelita V. Evangelista TIN 138-777-179 Irma D. Velasco Tl N 150-387-989

Doc No. 17G ; Page No.�; ATTY. BA RA I Y. DE LA ROSA NQlary_ Public for a 11 in Quezon City Book No. _1_, Commission under App. No. 363 Exp. 12-31-18 Series of 2018 17/F Galleria Corporate Center EDSA cor. Ortigas Ave., Quezon City Roll No. 64193/IBP No. 026679/01-12-18/RSM PTA No. 5610553/01-08-18/Quezon City MCLE Compliance No. V-0017741

63b ROBINSONSBANK

STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Robinsons Bank Corporation (the Bank) is responsible for the preparation and fair presentation of the financial statements including the schedules attached therein, as at December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, in accordance with the prescribed financial reporting framework indicated therein, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Board of Directors (BOD) is responsible for overseeing the Bank's financial reporting process.

The BOD reviews and approves the financial statements including the schedules attached therein, and submits the same to the stockholders.

SyCip Gorres Velayo & Co., the independent auditor appointed by the shareholders, has audited the financial statements of the Bank in accordance with Philippine Standards on Auditing and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such audit.

P sident and Chief Executive Officer , ,

An�li� Executive Vice President and COO r nt and Controller

Signed this 28th day of March 2018

ROBINSONSBANK 17 /F Galleria Corporate Center, EDSA car. Ortigas Avenue, Quezon City Tel. No. (632) 702-9500 www.robinsonsbank.com.ph [email protected] ACKNOWLEDGEMENT

REPUBLIC OF THE PHILIPPINES) Makati City ) S. S.

BEFORE ME, Notary Public for and in Makati City this 28th day of March 2018, personally appeared the following, who are identified through competent evidence of identity, to wit:

Name Valid IDs

Lance Y. Gokonqwei TIN 116-312-586

Elfren Antonio S. Sarte TIN 107-790-157

AnQelito V. EvanQelista TIN 138-777-179

Irma D. Velasco TlN 150-387-989

known to me to be the same person who executed the foregoing instrument and that they acknowledged to me that the same is their free and voluntary act and deed and that of the corporation they represent.

IN WITNESS WHEREOF, I have hereunto affixed my notarial seal at the date and place first above written.

Doc. No. J?>V Page No._u=J�_ • Bo0k No. -=---T Series of 2018.

ATTY. RO LS. COSTUNA Not ry Pub le or and in Makatl City Commlss on und r App. No. 411 Exp. 12-31-18 2nd F GS Bl g., 446 EDSA Makatl City oll of Attorneys No. 40241 IBP Lifetime No. 01666; Northern Samar PTR No. 5566642; 01-05-18/Quezon City MCLE Compllance No. V-0005141

63d SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, SGV 6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A), Building a better Philippines November 10, 2015. valid until November 9, 2018 working world

INDEPENDENT AUDITOR'S REPORT BUktPi.J Ot · TERNAL REVtr-.vr LARGE TA>.fJA'i'ERSSERVICE f LARGt r�_.:i.l.,· :RS t.s:;1STANCE DIV1SI(.,,.

The Board of Directors and Stockholders Date SCES Robinsons Bank Corporation CEIVED Report on the Consolidated and Parent Company Financial Statem c:n�ts�_ __.:....: R-=0..:.M:.:.:E=-0=---=Z:.:.•..;.;M.:.c.1.;_Rc...A_N_O_· _· ____.

Opinion

We have audited the consolidated financial statements of Robinsons Bank Corporation and its subsidiary (the Group) and the Parent Company financial statements of Robinsons Bank Corporation, which comprise the consolidated and parent company statements of financialposition as at December 31, 2017 and 2016, and the consolidated and parent company statements of income, consolidated and parent company statements of comprehensive income, consolidated and parent company statements of changes in equity and consolidated and parent company statements of cash flowsfor each of the three years in the period ended December 31, 2017, and notes to the consolidated and parent company financial statements, including a summary of significantaccounting policies.

In our opinion, the accompanying consolidated and parent company financial statements present fairly, in all material respects, the financialposition of the Group and the Parent Company as at December 31, 2017 and 2016, and their financialperformance and its cash flowsfor each of the three years in the period ended December 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis forOpinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated and Parent Company Financial Statements section of our report. We are independent of the Group and the Parent Company in accordance with the Code of Ethics forProfessional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the consolidated and parent company financial statements in the Philippines, and we have fulfilledour other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and parent company financialstatements of the current period. These matters were addressed in the context of our audit of the consolidated and parent company financialstatements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

64 11111111111111111111111111111111111111111111111111111111111111111 A member firm or Ernst & Young Global Umltec.J SGV Building a better working world

We have fulfilledthe responsibilities described in the Auditor's Responsibilities for the Audit of the Consolidated and Parent Company Financial Statements section ofour report, including in relation to these matters. Accordingly, our audit included the performanceof procedures designed to respond to our assessment of the risks ofmaterial misstatement of the consolidated and parent company financial statements. The results of our audit procedures, including the procedures performedto address the matters below, provide the basis for our audit opinion on the accompanying consolidated and parent company financial statements.

Applicable to the audit of the Consolidated and Parent Company Financial Statements

Adequacy of Allowance for Credit Losses on Loans and Receivables The Group's loans and receivables consist ofcorporate and consumer loans. The appropriateness of the provision for credit losses on these loans and receivables is a key area ofjudgment for the management. The Group determine the provision for credit losses on an individual basis forindividually significant loans and receivables, and collectively for loans and receivables that are not individually significant. The identification ofimpairment and the determination of the recoverable amount involve various assumptions and factors. This includes the financial condition of the counterparty, estimated futurecash flows, observable market prices and estimated net selling prices of the collateral. The use of assumptions could produce significantly different estimates of provision for credit losses.

The disclosures in relation to credit losses are included in Notes 3 and 14 to the financial statements.

Audit Response For provision for credit losses calculated on an individual basis, we selected a sample of impaired loans and obtained an understanding of the borrower's business and financial capacity. We also tested the assumptions underlying the impairment identification and quantification of the provision forcredit losses. This was done by assessing whether the forecastedcash flows are based on the borrower's current financial condition, checking the payment history of the borrower including payments made subsequent to yearend, agreeing the value of the collateral to the appraisal reports, checking whether the discount rate represents the original effective interest rate (EIR) or the current EIR of the loan, and re-performing the impairment calculation.

For provision for credit losses calculated on a collective basis, we tested the underlying models and the inputs to those models, such as historical loss rates and net flow rates. This was done by agreeing the details of the loan information used in the calculation ofloss rates and net flow rates to the Group's records and subsidiary ledgers, validating the delinquency age buckets of the loans and loan groupings and re-performing the calculation ofthe provision forcredit losses.

BUKt:P.U OF -'T��NAL �cV�t�ut LARGE TAXPAYERS SERVICE LARGE TAXPA',-:RS ASSISTANCE DIVISION

Date I rPR 16 2013 l SCES RECEIVED

65 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII A ment>er firm of Ernst & Young Global Limlled rd SGV Building a better working world

RecoverabilityRecoverability of of Deferred Deferred Tax Tax Assets Assets TheThe analysis analysis of of the the recoverability recoverability of of deferred deferred tax tax assets assets was was significant significant toto our our audit audit because because the the assessmentassessment process process is is complex complex and and judgmental. judgmental. TheThe recoverability recoverability of of deferred deferred tax tax assets assets is is based based on on variousvarious assumptions assumptions and and factors factors that that includes includes growth growth rates, rates, estimated estimated timing timing and and level level of of future future taxable taxable incomeincome available, available, expected expected future future marketmarket or or economic economic conditions conditions and and the the expected expected performance performance of of the the Group.Group.

TheThe disclosures disclosures in in relation relation to to deferred deferred income income taxes taxes are are included included in in Notes Notes 3 3 and and 23 23 to to the the financial financial statements. statements.

AuditAudit ResponseResponse WeWe reviewedreviewed the the management’s management's assessment assessment on on the the availability availability of of future future taxable taxable income income in in reference reference to to financialfinancial forecast forecast andand tax tax strategies. strategies. We We evaluated evaluated management’s management's forecast forecast byby comparing comparing loan loan portfolio portfolio andand deposit deposit growth growth rates rates with with that that of of the the industry industry and and the the historical historical performance performance of of the the Group. Group. WeWe also also reviewedreviewed the the timing timing of of the the reversal reversal of of future future taxable taxable and and deductible deductible temporary temporary differences. differences.

OtherOther Information Information

ManagementManagement is is responsible responsible for for the the other other information. information. The The other other information information comprisescomprises the the information information includedincluded inin the the Annual Annual Report Report for for the the year year ended ended December December 31, 31, 2017, 2017, but but does does not not include include the the consolidatedconsolidated and and parent parent company company financial financial statementsstatements and and our our auditor’s auditor's report report thereon. thereon. The The Annual Annual ReportReport forfor the the year year ended ended December December 31, 31, 2017 2017 are are expected expected to to be be made made available available to to us us after after the the date date of of this this auditor’sauditor's report. report.

OurOur opinionopinion onon the the consolidated consolidated and and parent parent company company financial financial statementsstatements does does not not cover cover the the other other informationinformation and and we we do do not not express express any any form form of of assurance assurance conclusion conclusion thereon. thereon.

InIn connectionconnection with with our our audits audits of of the the consolidated consolidated and and parent parent company company financial financial statements,statements, our our responsibilityresponsibility isis to to read read the the other other information information identifiedidentified above above when when it it becomes becomes available available and, and, in in doing doing so,so, considerconsider whether whether the the other other information information is is materially materially inconsistent inconsistent with with the the consolidated consolidated and and parent parent companycompany financial financial statements statements or or our our knowledge knowledge obtained obtained in in the the audit, audit, or or otherwise otherwise appears appears to to be be materiallymaterially misstated. misstated.

ResponsibilitiesResponsibilities of of Management Management and and Those Those Charged Charged with with Governance Governance for for the the Consolidated Consolidated and and ParentParent CompanyCompany Financial Financial Statements Statements

ManagementManagement is is responsible responsible for for the the preparation preparation and and fair fair presentationpresentation of of the the consolidated consolidated and and parent parent companycompany financial financial statementsstatements in in accordance accordance with with PFRSs, PFRSs, and and for for suchsuch internal internal control control as as management management determines is necessary to enable the preparation of consolidated and parent company financial determines is necessary to enable the preparation of consolidated and parent company financial statements that are freefrom material misstatement, whether due to fraudor error. statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and parent company financial statements, management is responsible for In preparing the consolidated and parent company financial statements, management is responsible for assessing the Group's and Parent Company's ability to continue as a going concern, disclosing, as assessing the Group’s and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group and the Parent Company or to cease operations, or has management either intends to liquidate the Group and the Parent Company or to cease operations, or has no realistic alternative but to do so. no realistic alternative but to do so. O �� r - eu1

Auditor's Responsibilities for the Audit of the Consolidated and Parent Company Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and parent company financialstatements as a whole are freefrom material misstatement, whether due to fraudor error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraudor error and are considered material if, individually or in the aggregate, they could reasonably be expected to influencethe economic decisions of users taken on the basis of these consolidated and parent company financialstatements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated and parent company financial statements, whether due to fraudor error, design and performaudit proceovres responsive to those risks, and obtain audit evidence that is svfficientand appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraudis higher than for one resulting fromerror, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appr9priate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the Group's and Parent Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significantdoubt on the Group's and Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated and parent company financialstatements or, if such disclosures are inadequate, to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated and parent company financialstatements, including the disclosures, and whether the consolidated and parent company financialstatements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities within the Group to express an opinion on the consolidated financialstatements. We ar.e.. ·. _ · � ·sion and performanceof the audit. We remain solely res n �\���li\¾���t�l�tTtt� LARGE TAX PA\ cRS ASSIST.l NCE DIVISION

Date I �p� 16 -�n,a . Ism 67 RECEIVED IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII SGV Building a better working world

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significantau�it findings, including any significant deficiencies in internal control that we identify during oµr audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and parent company financial statements of the current period and are thereforethe key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Supplementary InformationRequired Under Revenue Regulations 15-2010

Our audits were conducted forthe purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 31 to the financial statements is presented for purposes of filingwith the Bureau oflnternal Revenue and is not a required part of the basic financial statements. Such informationis the responsibility of the management of Robinsons Bank Corporation. The informationhas been subjected to the auditing procedures applied in our audit of the basic financialstatements. In our opinion, the informationis fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

The engagement partner on the audit resulting in this independent auditor's report is Miguel U. Ballelos, Jr.

SYCIP GORRES VELAYO & CO.

�u.�J,­ Mi�uel U. Ballelos, Jr. Partner CPA Certificate No. 109950 . Sec Accreditation No. 1566-A (Group A), j l)Ukt.i-'.U Of •'TERN AL R�V�f�l.ll - I LARGE TAXPAYERS June 9, 2016, valid until June 9, 2019 LARGE r,v.P1-.. =:RsAss 1sr.,SNce!:FiVI 01v1s1ONCE Tax IdentificationNo. 241-031-088 I BIR Accreditation No. 08-001998-114-2016 Date SCES February 15, 2016, valid until February 14, 2019 �13 PTR No. 6621218, January 9, 2018, Makati City R. CEIVED March 26, 2018

68 11111111111111111111111111111111111111111111111111111111111111111 A member firm of Ernst &Young Global Limited ROBINSONS BANK CORPORATION AND SUBSIDIARY T STATEMENTS OF FINANCIAL POSITION D

Consolidated Parent Company December 31 2017 2016 2017 2016 ASSETS Cash and Other Cash Items Pl,639,300,590 Pl,684,403,861 Pl,597,057,290 Pl,653,720,370 Due from Bangko Sentral ng Pilipinas (Note 15) 16,017,675,837 13,415,517,416 15,621,432,509 12,722,258,187 Due from Other Banks 3,820,050,486 4,090,364,784 3,749,409,945 3,995,280,423 Interbank Loans Receivable and Securities Purchased Under Resale Agreements (Notes 6 and 29) 3,327,394,739 677,831,467 2,868,924,517 589,077,515 Financial Assets at Fair Value Through Profitor Loss (Note 7) 48,134,331 2,555,185 48,134,331 2,555,185 Available-for-Sale Investments (Notes 7 and 25) 19,195,024,564 11,743,930,219 19,042,815,856 11,774,130,219 Held-to-Maturity Investments (Notes 7 and 25) 3,549,900,604 3,334,528,051 Loans and Receivables (Note 8) 57,653,772,637 38,897,081,887 56,658,934,513 37,969,349,408 Investment in a Subsidiary (Note 9) 1,215,713,175 1,204,884,0 l0 Property and Equipment (Note 10) 586,595,780 513,030,557 540,789,316 451,969,911 Investment Properties (Note 11) 284,512,646 285,433,340 151,460,150 129,916,432 Branch Licenses (Note 12) 999,064,339 997,450,182 378,664,339 376,850,182 Goodwill (Note 9) 244,327,006 244,327,006 Deferred Tax Asset - net (Note 23) 176,717,759 53,435,098 318,065,832 194,482,918 Other Assets (Note13) 920,460,156 1,456,629,880 902,062,043 1,439,012,183 P104,913,030,870 P77,61 l,891 ,486 P103,093,463,816 P75,838,014,994

LIABILITIES AND EQUITY Liabilities Deposit Liabilities (Notes 15 and 24) Demand P13,261,822,846 P12,428,636,410 P13,114,934,287 Pl2,286,356,800 Savings 59,914,046,564 37,970,501,792 58,697,118,467 36,800,315,109 Time 12,651,477,858 12,895,961,824 12,218,723,433 12,456,975,222 Long-term negotiable certificates of deposits 4,152,240,531 4,152,240,531 89,979,587,799 63,295,100,026 88,183,016,718 61,543,647,131 Manager's Checks 724,047,158 404,180,308 724,047,158 404,180,308 Accrued Expenses (Note 17) 550,399,481 420,399,662 537,646,829 412,576,968 Other Liabilities (Note17) 1,565,663,052 1,523,995,301 1,555,419,731 1,509,394,398 92,819,697,490 65,643,675,297 91,000,130,436 63,869,798,805 Equity Commonstock (Note 19) 12,000,000,000 12,000,000,000 12,000,000,000 12,000,000,000 Surplus 1,230,065,242 816,363,435 1,230,065,242 816,363,435 Surplus reserves (Notes 19 and 25) 5,988,712 112,303,137 5,988,712 112,303,137 Remeasurement losses on retirement pl an (Note 20) (13,467,057) (10,358,609) (13,467,057) (I 0,358,609) Net unrealized losses on Available-for-sale investments (Note 7) (1,026,656,867) (838,255,143) (1,026,656,867) (838,255,143) Cumulative translation adjustments (102,596,650) (111,836,631) (102,596,650) (111,836,631) 12,093,333,380 11,968,216,189 12,093,333,380 11,968,216,189 P104,913,030,870 P77,61 l,891,486 P103,093,463,816 P75,838,014,994

See accompanying Notes to Financial Statements

L REVti"i:vt. BUkt::I\U Of- · ·TERNA T,t..XPAYERS SERVIC� LARGE Dl'v!SIOh LARGE TA:--p;.-.�RS ASSISTANCE SCES Date · 1APR 16 2013 69 RECEIVED ROMEO Z. MIRANO 11111111111111111111111111111111111111111111111111111111111111111 ROBINSONS BANK CORPORATION AND SUBSIDIARY STATEMENTS OF INCOME

Consolidated Parent Comeanl'. Years Ended December 31 2017 2016 2015 2017 2016 2015 INTEREST INCOME ON Loans and receivables (Note 8) 1'3,192,169,144 1'2,328,160,821 1'2,046,191,9431'2,996,687,701 1'2,150,763,512 Pl,875,232,903 Investment securities (Note 7) 721,960,970 527,384,047 471,701,809 715,419,616 521,771,455 471,701,809 Due from Bangko Sentralng Pilipinas and other banks 60,018,293 136,143,153 136,167,427 41,018,763 122,966,757 117,358,172 Interbank loans receivable and Securities Purchased Under Resale Agreements (Note 6) 135,331,909 77,736,861 38,851,600 130,855,296 73,782,708 38,851,600

4,1091480,316 3,069,424,882 2,692,912,779 3,883,981,376 2,869,284,432 2,503,144,484 INTEREST EXPENSE ON Deposit liabilities (Notes 15 and 24) 1,125,520,351 648,863,123 564,025,432 1,097,317,673 617,621,632 526,236,729 Interbank loans ea:i::able 1,307,247 1,780 1,307,247 1,780

1,1261827 ,598 648,863,123 564,027,212 l,09816241920 617,621,632 526,238,509 NET INTEREST INCOME 2,982,652,718 2,420,561,759 2,128,885,567 2,785,356,456 2,251,662,800 1,976,905,975 Service fees and commission income 181,649,418 174,216,102 161,779,718 179,402,682 169,757,655 157,187,582

Service fees and commission exeense 5618861421 57,568,832 51,767,186 5215951251 55,291,870 50,711,825 NET SERVICE FEE AND COMMISSION

INCOME (Note 22) 124,7621997 1 I 6,647,270 I 10,012,532 126,807,431 114,465,785 106,475,757 Trading and securities gains - net (Note 7) 184,893,310 158,694,268 77,240,427 184,893,310 I 58,694,268 77,240,427 Foreign exchange gains - net 93,514,194 IO1 ,470,450 87,311,263 93,494,651 101,418,292 87,251,267

Miscellaneous (Note22) 7511921739 112,048,827 116,792,227 4328911579 89,064,132 98,811,908

TOTAL OPERATING INCOME 3146110151958 21909,422,574 2,520,242,016 3123414431427 2,715,305,277 2,346,685,334 OPERATING EXPENSES Compensation and fringe benefits (Notes 20 and 24) 929,940,096 738,073,601 559,049,424 863,103,600 679,455,645 503,338,388 Occupancy and equipment-related costs (Notes 21 and 24) 436,541,543 403,706,888 358,774,674 418,103,184 387,594,381 343,627,573 Depreciation and amortization (Note JO) 326,136,774 302,088,647 256,975,428 299,726,034 283,031,169 237,690,463 Taxes and licenses (Note 23) 279,175,060 226,923,192 200,561,303 259,222,457 206,686,984 192,082,811 Security, messengerial and janitorial 261,293,265 24 I ,970,093 211,863,843 246,836,400 232,262,277 187,563,224 Provision for credit and impairment losses (Note 14) 241,076,252 155,922,043 266,048,342 234,917,540 147,571,357 195,460,767 Insurance 194,111,901 109,356,975 I 08,792,521 187,223,024 103,090,856 102,240,512 Information technology 100,170,763 70,618,060 40,066,385 94,254,647 70,545,186 39,976,426 Entertainment, amusement, and recreation (Note 23) 84,527,148 63,184,361 51,520,973 82,887,548 62,02 I ,468 50,058,634 Communication 79,940,307 53,677,320 47,044,798 77,950,824 47,420,984 41,025,145 Management and professional fees 15,119,283 10,358,904 11,889,337 13,066,287 8,640,290 10,303,245

Miscellaneous (Note22l 171,939,745 189,382,568 167,090,120 15119231269 170,438,423 149,393,386 TOTAL OPERATING EXPENSES 3,119,972,137 2,565,262,652 2,279,677,148 2,929,214,814 2,398,759,020 2,052,760,574 INCOME BEFORE SHARE IN NET INCOME (LOSS) OF A SUBSIDIARY 341,043,821 344,159,922 240,564,868 305,228,613 316,546,257 293,924,760 SHARE IN NET INCOME (LOSS) OF A

SUBSIDIARY 28,1831574 22,386,977 {29,610,905) INCOME BEFORE INCOME TAX 341,043,821 344,159,922 240,564,868 333,412,187 338,933,234 264,313,855 PROVISION FOR INCOME TAX (Note 23) 33,656,439 96,679,444 96,562,379 26,024,805 91,452,756 120,311,366

NET INCOME 1'307,3871382 1'247,480,478 1'144,002,489 1'3071387,382 1'247,480,478 P1 44,002,489

See accompanying Notes to Financial Statements. Of ·fERNAL REVt:1',vt BUKt:P.U LARGE TA>.P.A.YERS SERVICE Dl\11Sl0t� I LARGE TAXPP\ =:RSASSISTANCE

Date 1\PR 16 201� SCES 70 RECEIVED IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII ROBINSONS BANK CORPORATION AND SUBSIDIARY STATEMENTS OF COMPREHENSIVE INCOME

Consolidated Parent Comean:l:'. Years Ended December 31 2017 2016 2015 2017 2016 2015 NET INCOME P307,387z382 P247,480,478 Pl44,002,489 P307z387z382 ¥247,480,478 P1 44,002,489 OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF T AX Item that may not be reclassifiedto profit or loss Change in remeasurement gains (losses) on retirement plan (Note 20) (3,108,448) 16,486,237 6,476,200 (3,108,448) 16,486,237 6,476,200 Items that may be reclassifiedto profit or loss Change in net unrealized losses on AFS investments (Note 7) (188,401,724) (275,307,049) (287,578,81 I) (188,401,724) (275,307,049) (287,578,81 I) Translation adjustments 9,239z981 (9,480,791) (462,362) 9,239,981 (9,480,791) (462,362)

(182z270z191} (268,301 ,6032 (281,564,9732 (182,2701191} (268,301,6032 (281,564,9732 TOTAL COMPREHENSIVE INCOME

Q:OSS} P125,117,191 (P20,82 l ,1252 (Pl 37,562,4842 Pl251117,191 (P20,821,1252 (1'137,562,4842

See accompanying Notes to Financial Statements.

. . ..ne:ew ·nnw- am-:---- BUKt:t,U Of. 1 TER.N�L RtVt:r--.uc. LARGE TAXPAYERS SERVICE 1· LARGE TAXP�', ::RSASS!STANC E Ol\t1SION

Date C APR 16 2013 SCES I RECEIVED

71 11111111111111111111111111111111111111111111111111111111111111111 Parent Comeanr Net Unrealized Remeasurement Losses on Deposit for Stock Surplus Losses on Available for Sale Cumulative Common Stock Preferred Stock Subscription Surplus Reserves Retirement Plan Investments Translation Q::!ote 19) (Note 19) (Note 19) (Note 19) (Note 19 and 25) (Note 202 Q::!ote 7) Adjustments Total Balance at January I, 2017 1!12,000,000,000 I!- I!- 1!816,363,435 1!112,303,137 (1!10,358,609) (1!838,255,143) (lllll ,836,63 1) 1! 11,968,216,189 Total comprehensive income (loss) for the year - - - 307,387,382 - (3,108,448) (188,401,724) 9,239,981 125,117,191 Reversal of appropriation for self-insurance (Note 19) - - - 106,952,397 (106,952,397) Aeeroeriation for trust reserves (Note 19) - - - {637,9722 637,972 1!1,230,065,242 115,988,712 {lll,026,656,867) Balance at December 31, 2017- - 1!12,000,000,000 I!- I!- {1!13,467,057) {1!102,596,650) 1!12,093,333,380

Balance at January I, 2016 1'436,835,000 P5,663,165,000 P5,900,000,000 P573,408,796 Pl07,777,298 (P26,844,846) (P562,948,094) (Pl 02,355,840) Pl1,989,037,314 Total comprehensive income (loss) for the year - - - 247,480,478 - 16,486,237 (275,307,049) (9,480,791) (20,821,125) Conversion of preferred stock to common stock (Note 19) 5,663,165,000 (5,663,165,000) Issuance of common stock (Note 19) 5,900,000,000 - (5,900,000,000) Appropriation for self-insurance (Note 19) - - (3,600,000) 3,600,000 Aeeroeriation for trust reserves Q::!ote 192 - - {925,8392 925,839 Balance at December 31, 2016 Pl2,000,000,000 P-- P-- P816,363,435 Pl 12,303,137 {PI0,358,609) (P838,255,143) (Pl1 1,836,6312 Pl1,968, 216,189

Balance at JanuaryI, 2015 1'436,835,000 P5,202,462,740 P- P399,198,980 Pl37,984,625 (P33,32 l,046) (P275,369,283) (PIOl,893,478) P5,765,897,538 Total comprehensive income (loss) forthe year - - - 144,002,489 - 6,476,200 (287,578,8I I) (462,362) (137,562,484) Is suance of preferred stock - 460,702,260 - - - - - 460,702,260 Deposit for futurestock subscription - - 5,900,000,000 - - - - 5,900,000,000 Reversal of appropriation for self-insurance (Note 19) - - 36,431,537 (36,431,537) Appropriation for self-insurance (Note 19) - - - (3,600,000) 3,600,000 Aperoeriation for trust reserves (Note 19) - - - (2,624,210) 2,624,210 Balance at December 31, 2015 1'436,835,000 P5,663,I 65,000 P5,900,000,000 P573,408, 796 Pl07,777,298 (P26,844,846) (P562,948,094) (Pl02,355,840) Pl 1,989,037,314

r, ee accompanyin/i:NotestoJEina1!Jfit:¥ Statements. GlrC � co m)>:X f"' ----- � ::o rr � � � ��E 3: """ > �-I� m \ J 0 � ;g wv�s; •:_-· .N l�J I-"' J> )> -;. CD m- �{/);):,., .­ _ "-; �- .(fJ Zmll:l I ,.,,,, fllll t'rj �;o "----�o << :m- 73 H r.r, <'0 7' \,,/ '- _, u,-rn -C M en o-z r I IIIIIIII IIII Ill lllllll lllll Ill lllll 1111111111111111111 �11111 Parent Comeanr Net Unrealized Remeasurement Losses on Deposit for Stock Surplus Losses on Available for Sale Cumulative Common Stock Preferred Stock Subscription Surplus Reserves Retirement Plan Investments Translation Q::!ote 19) (Note 19) (Note 19) (Note 19) (Note 19 and 25) (Note 202 Q::!ote 7) Adjustments Total Balance at January I, 2017 1!12,000,000,000 I!- I!- 1!816,363,435 1!112,303,137 (1!10,358,609) (1!838,255,143) (lllll ,836,63 1) 1! 11,968,216,189 Total comprehensive income (loss) for the year - - - 307,387,382 - (3,108,448) (188,401,724) 9,239,981 125,117,191 Reversal of appropriation for self-insurance (Note 19) - - - 106,952,397 (106,952,397) Aeeroeriation for trust reserves (Note 19) - - - {637,9722 637,972 1!1,230,065,242 115,988,712 {lll,026,656,867) Balance at December 31, 2017- - 1!12,000,000,000 I!- I!- {1!13,467,057) {1!102,596,650) 1!12,093,333,380

Balance at January I, 2016 1'436,835,000 P5,663,165,000 P5,900,000,000 P573,408,796 Pl07,777,298 (P26,844,846) (P562,948,094) (Pl 02,355,840) Pl1,989,037,314 Total comprehensive income (loss) for the year - - - 247,480,478 - 16,486,237 (275,307,049) (9,480,791) (20,821,125) Conversion of preferred stock to common stock (Note 19) 5,663,165,000 (5,663,165,000) Issuance of common stock (Note 19) 5,900,000,000 - (5,900,000,000) Appropriation for self-insurance (Note 19) - - (3,600,000) 3,600,000 Aeeroeriation for trust reserves Q::!ote 192 - - {925,8392 925,839 Balance at December 31, 2016 Pl2,000,000,000 P-- P-- P816,363,435 Pl 12,303,137 {PI0,358,609) (P838,255,143) (Pl1 1,836,6312 Pl1,968, 216,189

Balance at JanuaryI, 2015 1'436,835,000 P5,202,462,740 P- P399,198,980 Pl37,984,625 (P33,32 l,046) (P275,369,283) (PIOl,893,478) P5,765,897,538 Total comprehensive income (loss) forthe year - - - 144,002,489 - 6,476,200 (287,578,8I I) (462,362) (137,562,484) Is suance of preferred stock - 460,702,260 - - - - - 460,702,260 Deposit for futurestock subscription - - 5,900,000,000 - - - - 5,900,000,000 Reversal of appropriation for self-insurance (Note 19) - - 36,431,537 (36,431,537) Appropriation for self-insurance (Note 19) - - - (3,600,000) 3,600,000 Aperoeriation for trust reserves (Note 19) - - - (2,624,210) 2,624,210 Balance at December 31, 2015 1'436,835,000 P5,663,I 65,000 P5,900,000,000 P573,408, 796 Pl07,777,298 (P26,844,846) (P562,948,094) (Pl02,355,840) Pl 1,989,037,314

r, ee accompanyin/i:NotestoJEina1!Jfit:¥ Statements. GlrC � co m)>:X f"' ----- � ::o rr � � � ��E 3: """ > �-I� m \ J 0 � ;g wv�s; •:_-· .N l�J I-"' J> )> -;. CD m- �{/);):,., .­ _ "-; �- .(fJ Zmll:l I ,.,,,, fllll t'rj �;o "----�o << :m- 73 H r.r, <'0 7' \,,/ '- _, u,-rn -C M en o-z r I IIIIIIII IIII Ill lllllll lllll Ill lllll 1111111111111111111 �11111 ROBINSONS BANK CORPORATION AND SUBSIDIARY STATEMENTS OF CASH FLOWS

Consolidated Parent Comean:!'. Years Ended December 31 2017 2016 2015 2017 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Income beforeincome tax 11341,043,821 P344,l 59,922 P240,564,868 11333,412,187 P338,933,234 P264,313,855 Adjustments for: Depreciation and amortization (Note 10) 326,136,774 302,088,647 256,975,428 299,726,034 283,031,169 237,690,463 Provision forcredit and impairment losses (Note 14) 241,076,252 I 55,922,043 266,048,342 234,917,540 147,571,357 195,460,767 Gain on sale of available-for-sale investments (Note 7) (147,619,819) (146,826,846) (57,821,174) (147,619,819) (146,826,846) (57,821,174) Gain on disposal ofheld-to-maturity investments (Note 7) (8,928,275) (8,928,275) Retirement expense (Note 20) 25,448,232 30,146,298 23,033,026 25,448,232 28,570,765 21,507,889 Loss (gain) on initial recognition of repossessed chattels (Notes 13 and 22) 18,896,886 (25,017,967) (6,001,755) 18,786,884 (25,066,668) (5,995,744) Gain on initial recognition of investment properties (Notes 11 and 22) (33,889,035) (17,303,414) (35,549,709) (31,526,513) (12,665,271) (30,698,176) Loss (gain) on sale ofother assets (Note 22) 28,274,026 13,778,921 (12,433,552) 28,301,193 13,792,885 (12,283,552) Gain on sale of investment properties (Notes IO and 22) (5,351,114) (8,148,422) (10,466,376) (178,689) (3,543,546) (5,936,420) Unrealized market valuation loss (gain on financial assets at fair value through profit or loss (Note 7) 1,190,954 (1,197,040) 9,562,658 1,190,954 (I, 197,040) 9,562,658 Unrealized market valuation loss on financialliabilities at fair value through profitor loss (Note 7) 5,904,377 7,447,751 5,904,377 7,447,751 Gain on sale ofproperty and equipment (Notes IO and 22) (16,475,650) (3,864,8 I I) (680,079) (1,756,476) (3,824,515) (680,079) Share in net income (loss) ofa subsidiary (28,183,574) (22,386,977) 29,610,905 Changes in operating assets and liabilities: Decrease (increase) in: Financial assets at fair value through profitor loss (46,770,100) 3,774,579 1,291,095,695 (46,770,100) 3,774,579 1,291,095,695 Loans and receivables (19,035,339,274) (11,762,76 I ,308) (5,304,236,982) (19,214,461,754) (11,638,009,464) (5,263,128,214) Other assets 336,891,997 (567,764,559) (212,829,317) 601,969,901 (567,727,758) (209,040,013) Increase (decrease) in: Deposit liabilities 26,684,487,773 19,627,340,933 2,457,084,672 26,639,369,S87 19,668,517,132 2,452,469,225 Manager's checks 319,866,850 115,043,539 10,716,343 319,866,850 115,043,539 10,716,343 Accruedexpenses 129,999,819 1,413,008 (7,673,188) 125,069,861 (21,014,290) 1,460,671 Other liabilities 7,206,694 244,466,663 (182,961,834) 10,863,685 271,354,008 (194,133,445) Net cash erovided bl (used in) oeerations 9,172,051,188 8,312,697,937 (1,275,572,934) 9,165,402,085 8,435,774,040 (1,265,828,346)

Income taxes paid (259,204,811) (195,424,104) (198,772,460) (251,889,667) (187,824,093) (194,244,529) Contributions eaid on retirement elan (25,293,666) (25,293,666) Net provided cash provided by (used in) oeerating activities 118,912,846,377 P8,091,980,167 (P 1,474,345,394) 118,913,512,418 PS,222,656,281 (P 1,460,072,875)

(Forward)

BUKt::I\U Of rERNAL ��V�r,v.._ LARGE TAXPAYERS SERVICE LARGE TAXP�:, :RS ASSISTANCE Dlv1SIOh

Date PR 16 201� SCEE R

74 11111111111111111111111111111111111111111111111111111111111111111 Consolidated Parent Comean� Years Ended December 31 2017 2016 2015 2017 2016 2015 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Placements with BSP and other banks P- P- (¥259,700,610) P- P- (¥259,700,610) Available-for-sale investments (16,324,976,921) (12,016,173,086) (I 0,422,285,592) (16,324,976,921) (12,014,973,086) (10,422,285,592) Held-to-maturity investments (Note 7) (14,828,885) (825,605,00 I) (1,115,692,134) (14,828,885) (610,232,448) (1,115,692,134) Investment in a subsidiary (Note 9) (400,000,000) Property and equipment (Notes l O and 28) (229,685,485) (209,213,066) (171,718,782) (215,767,541) (187,931,l 05) (154,534,468) Branch licenses (Note 12) (1,814,157) (44,600,000) (I ,000,000) (1,814,157) (44,000,000) (I ,000,000) Software costs (Note l 3) (53,850,078) (26,193,192) (9,779,795) (53,650,078) (24,795,432) (2,444,000) Proceeds from sale of: Available-for-saleinvestments 11,740,094,107 8,303,911,993 9,589,810,015 11,940,557,816 8,303,911,997 9,589,810,015 Propertyand equipment 34,541,117 5,926,745 6,301,486 6,068,287 5,761,451 6,301,486 Investment properties 22,556,277 32,453,351 16,563,652 825,000 17,228,000 11,588,473 Repossessed chattels 175,517,463 88,955,558 68,517,478 166,030,071 88,897,159 68,367,478 Held-to-maturity investment (Note 7) 308,928,275 308,928,275 Proceeds from maturity of: Placements with BSP and other banks 72,250,000 260,700,610 1,000,000 72,250,000 260,700,610 1,000,000 Available-for-sale investments 132,363,500 39,776,000 119,000,000 132,363,500 39,776,000 119,000,000 Held-to-maturi!}:'.investment (Note 7) 225,372,553 25,000,000 135,000,000 10,000,000 25,000,000 135,000,000 Net cash used in investing activities (3,913,532,234) (4,365,060,088) (2,043,984,282) (3,974,014,633) (4,540,656,8542 (2,024,589,352) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds fromdeposit for future stock subscription (Note 19) 5,900,000,000 5,900,000,000 Issuance of common stock Q::!ote 19) 460,702,260 460,702,260 Cash erovided b� financingactivities 6,360,702,260 6,360,702,260 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES 9,239,981 (9,480,791) (462,3622 9,239,981 (9,480,791) (462,362) NET INCREASE IN CASH AND CASH EQUIVALENTS 5,008,554,124 3,717,439,288 2,841,910,222 4,948,737,766 3,672,518,636 2,875,577,671 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items 1,684,403,861 1,702,287,136 1,576,260,066 1,653,720,370 1,665,564,278 1,501,127,113 Due from Bangko Sentral ng Pilipinas 13,415,517,416 9,922,250,327 9,494,853,206 12,722,258,187 9,189,740,992 8,805,204,359 Due from other banks 4,090,364,784 4,430,140,777 1,641,654,746 3,995,280,423 4,336,512,589 1,509,908,716 Securities Purchased Under Resale Agreements Q::!ote 29) 581,831,467 500,000,000 493,077,515 500,000,000 19,772,117,528 16,054,678,240 13,212,768,018 18,864,336,495 15,191,817,859 12,316,240,188 CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items 1,639,300,590 1,684,403,861 1,702,287,136 1,597,057,290 1,653,720,370 1,665,564,278 Due from Bangko Sentral ng Pilipinas 16,017,675,837 13,415,517,416 9,922,250,327 15,621,432,509 12,722,258,187 9,189,740,992 Due from other banks (Note 2 9) 3,820,050,486 4,090,364,784 4,430,140,777 3,749,409,945 3,995,280,423 4,336,512,589 Interbank loans receivable/Securities Purchased Under Resale Agreements (Note 29) 3,303,644,739 58 I ,83 I ,467 2,845,174,517 493,077,515 P24,780,671,652 Pl 9,772,1 I 7,528 P 16,054,678,240 P23,813,074,261 Pl 8,864,336,495 Pl 5,!91,817,859

OPERATIONAL CASH FLOWS FROM INTEREST Interest received 113,991,914,367 P2,974,464,676 P2,629,678,424 P3,706,854,801 P2,788,093,052 P2,448,295,736 Interest eaid 1,073,142,567 611,710,788 584,371,226 1,044,999,479 580,745,810 546,459,375

See accompanying Notes to Financial Statements

BUr

Date PR 16 201� \scu I RECEIVEDr R()MEO Z. MIRANO

75 11111111111111111111111111111111111111111111111111111111111111111 ROBINSONS BANK CORPORATIONAND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Robinsons Bank Corporation (the Parent Company or the Bank) was domiciled and incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on April 28, 1966 and acquired its license fromBangko Sentral ng Pilipinas (BSP) to operate as a commercial bank on March 1, 2002. On March 21, 2013, the SEC granted the license extending the Bank's corporate life for another fifty (50) years.

The registered address and principal place of business of the Parent Company is at 17th Floor, Galleria Corporate Center, EDSA corner Ortigas Avenue, Quezon City.

The Parent Company is 60.00% and 40.00% owned by JG Summit Capital Services Corp. (JGSCSC) and Robinsons Retail Holdings, Inc. (RRHI), respectively. The ultimate parent company of the Bank is JG Summit Holdings, Inc. On June 16, 2017, the Bank issued P4. l 8 billion long-term negotiable certificate of deposits (LTNCD) carried at a tenor of 5.5 years with a coupon of 4.125%. The issuance of LTNCD diversified the funding sources and represents the Bank's initial entry into the debt capital market. This issuance was listed in the Philippine Dealing and Exchange Corporation (PDEx) (see Note 15).

In December 2012, the Parent Company acquired 100.00% controlling interest in Legazpi Savings Bank, Inc. (LSB) (see Note 9).

LSB was incorporated and registered with the SEC on May 8, 1976 and acquired license from the BSP to operate as a thrift bank. LSB's registered address and principal place of business is at Rizal Street, Barangay Sagpon, Albay, Legazpi City. LSB operates and provides its services through a network of fifteen (15) banking units including head office and a main branch in the area of Albay.

The Parent Company and its subsidiary (the Group) is engage in���j�dft�b�{:�-t resp ctively, whose principal acti ities inclu deposit-taking, l�:r� �M tii� � _v ?� ��s A IQt· ,· ! dealmg and fund transfers or remittance serv1cmg. r------.;___:� Date PR 16 20il SCE� 2. Summary of Significant Accounting Policies RECEIVED Basis of Preparation The accompanying financial statements of the Group and of tniee�airrenritlJomm'ffli�rnei m���eet=�el.l on a historical cost basis except forfinancial assets at fairvalue through profitor loss (FVPL) and available-for-sale (AFS) investments which are measured at fairvalue.

The financial statements of the Parent Company reflect the accounts of the Regular Banking Unit (RBU) and the Foreign Currency Deposit Unit (FCDU). The functional currency of RBU and FCDU is Philippine Peso (PHP) and United States Dollar (USD), respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBU are translated into their equivalents in PHP (see accounting policy on Foreign Currency Translation). The financial statements individually prepared for these units are combined and inter-unit accounts and transactions are eliminated.

The financial statements are presented in PHP, and all amounts are rounded to the nearest peso (P), except when otherwise indicated.

76 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII Statement of Compliance The financial statements of the Group and of the Parent Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Presentation of Financial Statements The Group and the Parent Company present its statements of financial position broadly in the order of liquidity. An analysis regarding recovery or settlement within twelve (12) months after the statement of financial position date (current) and more than twelve (12) months after the statement of financial position date (non-current) is presented in Note 18.

The Bank assesses that it has a currently enforceable right of offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Bank and all of the counterparties. Income and expense are not offset in the statement of income unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group and of the Parent Company. This is not generally the case with master-netting agreements, where the related assets and liabilities are presented gross in the statement of financial position.

Basis of Consolidation The consolidated financial statements of the Group are prepared for the same reporting period as the subsidiary, using consistent accounting policies.

All intra-group balances, transactions, income and expenses and profit and losses resulting from intra- group transactions are eliminated in full in the consolidation.

A subsidiary is fully consolidated from the date on which control is transferred to the Parent Company. Control is achieved where the Parent Company is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary ceases when control is transferred out of the Parent Company. The results of a subsidiary acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate.

A change in the Parent Company’s ownership interest in a subsidiary, without a loss of control, is accounted for as an equity transaction. Any difference between the amount by which the non- controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Parent Company.

When a change in ownership interest of a subsidiary occurs which results in a loss of control over the subsidiary, the Parent Company: ∂ derecognizes the related assets (including goodwill) and liabilities of the subsidiary; ∂ derecognizes the carrying amount of any non-controlling interests; ∂ derecognizes the related other comprehensive income (OCI) recorded in equity and recycles the same to statement of income or surplus; ∂ recognizes the fair value of the consideration received; ∂ recognizes the fair value of any investment retained; and ∂ recognizes any surplus or deficit in statement of income.

77 *SGVFS028612* Changes in Accounting Policies and Disclosures The Group applied, for the first time, the following applicable new and revised accounting standards. Unless otherwise indicated, these new and revised accounting standards have no impact to the Group. Except for these standards and amended PFRS which were adopted as of January 1, 2017, the accounting policies adopted are consistent with those of the previous financial year.

Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to summarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.

These amendments does not have any impact to the Group since the Parent Company’s subsidiary is neither classified as held for sale.

Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).

Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions upon the reversal of the deductible temporary difference related to unrealized losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

The Group applied the amendments retrospectively. However, their application has no effect on the Group’s financial position and performance as the Group has no deductible temporary differences or assets that are in the scope of the amendments.

Significant Accounting Policies

Fair Value Measurement For measurement and disclosure purposes, the Group determines the fair value of an asset or a liability at initial measurement date or at each statement of financial position date. Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: ∂ In the principal market for the asset or liability; or ∂ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

78 *SGVFS028612* If the asset or liability measured at fair value has a bid and ask price, the price within the bid-ask spread that is the most representative of fair value in the circumstances shall be used to measure fair value, regardless of where the input is categorized within the fair value hierarchy.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level of input that is significant to the fair value measurement as a whole:

∂ Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities; ∂ Level 2 – Valuation techniques for which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable ∂ Level 3 – Valuation techniques for which the lowest level input that is significant to the measurement is unobservable.

External appraisers are involved for valuation of significant non-financial assets such as investment properties. Selection criteria include market knowledger, reputation, independence and whether professional standards are maintained.

For purposes of the fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of fair value hierarchy (see Note 5).

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole at the end of each statement of financial position).

Foreign Currency Translation Transactions and balances The books of accounts of the RBU are maintained in PHP, while those of the FCDU are maintained in USD.

For financial reporting purposes, FCDU accounts and the foreign currency-denominated monetary assets and liabilities in the RBU are translated into their PHP equivalents based on the Philippine Dealing System (PDS) closing rate prevailing at the statement of financial position date and for, foreign currency-denominated income and expenses based on the spot exchange rate at the date of the transaction. Foreign exchange differences arising from restatements of foreign currency-denominated assets and liabilities in the RBU are credited to or charged against the statement of income under ‘Foreign exchange gain (loss) - net’ in the year in which the rates change. Foreign exchange differences arising on translation of FCDU accounts to peso are taken to other comprehensive income (OCI) under ‘Translation adjustments’.

79 *SGVFS028612* Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates as at the date when the fair value is determined.

Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items, amounts due from BSP and other banks, interbank loans receivable and Securities Purchased Under Resale Agreements (SPURA) with original maturities of three (3) months or less from dates of placements and that are subject to insignificant risk of changes in value.

Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase at a specified future date (‘repos’) are not derecognized from the statement of financial position. The corresponding cash received, including accrued interest, is recognized in the statement of financial position as ‘Securities sold under repurchase agreements (SSURA)’, reflecting the economic substance of such transaction.

Conversely, securities purchased under agreements to resell at a specified future date (‘reverse repos’) are not recognized in the statement of financial position. The corresponding cash paid, including accrued interest, is recognized in the statement of financial position as SPURA, and is considered a loan to the counterparty.

The difference between the purchase price and resale price is treated as interest income and is accrued over the life of the agreement using the effective interest rate (EIR) method.

Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Purchases or sales of financial instruments that require delivery of assets within the time frame established by regulation or convention in the market are recognized on the settlement date. Settlement date accounting refers to (a) recognition of an asset on the day it is received by the Group, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the Group. Deposits, amounts due from banks and customers and loans are recognized when cash is received by the Group or advanced to the borrowers. Derivatives are recognized on a trade date - the date that the Group becomes a party to the contractual provisions of the instrument. Trade date accounting refers to (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date.

Initial recognition of financial instruments All financial instruments are initially recognized at fair value. Except for financial assets and financial liabilities at FVPL, the initial measurement of financial instruments includes transaction costs. The Group classifies its financial assets in the following categories: financial assets at FVPL, AFS investments, held-to-maturity (HTM) investments, and loans and receivables. Financial liabilities are classified into financial liabilities at FVPL and financial liabilities at amortized cost. The classification depends on the purpose for which the financial instruments were acquired and whether they are quoted in an active market. Management determines the classification of its financial instruments at initial recognition, and where allowed and appropriate, and re-evaluates such designation at every statement of financial position date.

80 *SGVFS028612* ‘Day 1’ difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or computed based on valuation technique whose variables include only data from observable markets, the Group recognizes the difference between the transaction price and the fair value (a ‘Day 1’ difference) in the statement of income unless it qualifies for recognition as some other type of asset or liability. In cases where fair value is determined using data which are not observable from the market, the difference between the transaction price and the model value is only recognized in the statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the amount of ‘Day 1’ difference.

Derivatives recorded at FVPL The Parent Company is a counterparty to derivative contracts, such as currency forwards and currency swaps. These derivatives are entered into as a service to customers and as a means of reducing or managing their respective foreign exchange exposures, as well as for trading purposes. Such derivative financial instruments are initially recorded at fair value on the date at which the derivative contract is entered into and are subsequently remeasured at fair value. Any gains or losses arising from changes in fair values of derivatives are taken directly to the statement of income and are included in ‘Trading and securities gain - net’. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Financial assets held for trading Financial assets held for trading are recorded in the statement of financial position at fair value. Changes in fair value relating to the held for trading positions are recognized in ‘Trading and securities gains - net’ and interest earned is recorded in ‘Interest income’. Included in this classification are debt securities which have been acquired principally for the purpose of selling and repurchasing in the near term.

AFS investments AFS investments are non-derivative financial assets designated as AFS or which do not qualify to be classified as financial assets at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. They include equity investments, government securities and other debt instruments.

After initial measurement, AFS investments are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency- denominated AFS debt securities, is reported in the statement of income. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported income and are reported as part of OCI as ‘Net unrealized gains (losses) on AFS investments’.

When an AFS investment is disposed of, the cumulative gain or loss previously recognized in OCI is recognized as ‘Trading and securities gain - net’ in the statement of income. Where the Group holds more than one investment in the same security, these are deemed to be disposed of on a first-in first- out basis. Gains or losses on disposal are determined using average cost method. Interest earned on holding AFS debt investments are reported as ‘Interest income’ using the EIR method. Dividends earned on holding AFS equity investments are recognized in the statement of income as ‘Miscellaneous income’ when the right of the payment has been established. The losses arising from impairment of AFS investments are recognized as ‘Provision for credit and impairment losses’ in the statement of income.

81 *SGVFS028612* HTM investments HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities which the Group’s management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments before their maturity, the entire category would be tainted and reclassified as AFS investments unless for sales or reclassifications that: ∂ are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value; ∂ occur after the entity has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or ∂ are attributable to an isolated event that is beyond the entity’s control, is non-recurring and could not have been reasonably anticipated by the entity.

Once tainted, the Group is not permitted to classify any of its financial assets as HTM investments for the next two fiscal years after the year of reclassification.

After initial measurement, these investments are subsequently measured at amortized cost using the EIR method, less any impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. Gains and losses are recognized in profit or loss in the statement of income when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments are recognized in the statement of income under ‘Provision for credit and impairment losses’. The effects of restatement of foreign currency-denominated HTM investments are recognized in profit or loss.

Loans and receivables This category comprises ‘Cash and other cash items’, ‘Due from BSP’, ‘Due from other banks’, ‘Interbank loans receivable/Securities purchased under resale agreements’, ‘Loans and receivables’ and certain items in ‘Other assets’. These are non-derivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS investments or financial assets at FVPL.

After initial measurement, loans and receivables are subsequently measured at amortized cost using the EIR method, less allowance for credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that form an integral part of the EIR. The amortization is included in ‘Interest income’ in the statement of income. The losses arising from impairment are recognized in the profit or loss under ‘Provision for credit and impairment losses’.

Financial liabilities at amortized cost This category represents issued financial instruments or their components, which are not designated at FVPL and comprises ‘Deposit liabilities’, ‘Manager’s checks’ and certain items under ‘Accrued expenses’ and ‘Other liabilities’ in the statement of financial position, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements (‘compound’ financial instruments) are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

82 *SGVFS028612* After initial measurement, financial liabilities at amortized cost are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on the issue and debt issuance costs that form an integral part of the EIR.

Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are not offset in the statement of comprehensive income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: ∂ the rights to receive cash flows from the asset have expired; or ∂ the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; or ∂ the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control over the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control over the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Financial liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in statement of income.

Impairment of Financial Assets The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment 83 *SGVFS028612* may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows of the financial asset or group of financial assets, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost (other than AFS and HTM) The Group first assesses at each statement of financial position date whether objective evidence of impairment exists individually for financial assets that are individually significant. If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred), discounted using the financial asset’s original EIR. If a financial asset carried at amortized cost has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of collateralized financial assets reflects the cash flows that may result from foreclosure, less cost for obtaining and selling the collateral, whether or not foreclosure is probable.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is charged to the statement of income as ‘Provision for credit and impairment losses’. Interest income continues to be recognized based on the original EIR of the asset. Financial assets, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If subsequently, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to ‘Provision for credit and impairment losses’ in the profit or loss. If the Group determines that no objective evidence of impairment exists for individually assessed loans and receivables, whether significant or not, it includes the asset in a group of assets with similar credit risk characteristics and collectively assesses for impairment in order to capture losses which the Group believes has been incurred during the reporting period, but has not yet been identified to specific financial assets. Financial assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment for impairment.

For the purpose of a collective evaluation of impairment, loans and receivables are grouped on the basis of asset type, industry, collateral type, past-due status and other relevant factors. Those groupings reflect credit risk characteristics relevant to the estimation of future cash flows and indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the loans and receivables being evaluated.

Future cash flows in a group of loans and receivables that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets within the same credit risk groupings. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions. Estimates of changes in future cash flows reflect changes in related observable data from year to year (such as changes in unemployment rates, property prices, payment status, or other factors that are indicative of incurred losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

The Group also uses the Net Flow Rate method to determine the credit loss rate of a particular delinquency age bucket based on historical data of flow-through and flow-back of loans across specific delinquency age buckets. 84 *SGVFS028612* The allowance for credit losses is determined based on the results of the net flow to write-off methodology. Net flow tables are derived from monitoring of monthly peso movements between different stage buckets, from 1-day past due to 180-day past due. The net flow to write-off methodology relies on the last 36 months of net flow tables to establish a percentage (‘net flow rate’) of receivables from customers that are current or in any state of delinquency (i.e., 30, 60, 90, 120, 150 and 180 day past due) as of reporting date that will eventually result in write-off. The gross provision is then computed based on the outstanding balances of the receivables as of statement of financial position date and the net flow rates determined for the current and each delinquency bucket. This gross provision is reduced by the estimated recoveries, which are also based on historical data, to arrive at the required allowance for credit losses.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed.

Any subsequent reversal of an impairment loss is recognized in the statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Restructured loans Where possible, the Group seeks to restructure past due loans rather than take possession of the related collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due.

Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR.

AFS investments For equity securities classified as AFS investments, this would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss-measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in OCI is removed from OCI and recognized in the statement of income. Impairment losses on equity securities are not reversed through the statement of income. Increases in fair value after impairment are recognized directly in OCI.

For debt securities classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income from impaired AFS debt securities is based on the reduced carrying amount and is accrued based on the original EIR used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of ‘Interest income’ in the statement of income. If subsequently, the fair value of a debt security increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income.

85 *SGVFS028612* HTM investments The Group assesses at each statement of financial position date whether objective evidence of impairment exists individually for financial assets that are individually significant. If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted using the financial asset’s original EIR. If a financial asset carried at amortized cost has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR, adjusted for the original credit risk premium. Impairment loss is recognized in statement of income.

Investment in a Subsidiary Subsidiary pertains to entity over which the Parent Company has control. When the Parent Company has less than a majority of the voting or similar rights of an investee, the Parent Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

∂ the contra arrangement with the other vote holders of the investee; ∂ rights arising from other contractual arrangements; and ∂ the Parent Company’s voting rights and potential voting rights.

Investment in a subsidiary in the separate financial statements is accounted for using the equity method. Under the equity method, the investment in a subsidiary is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group and the Parent Company’s share of net assets of the subsidiary since the acquisition date. Goodwill relating to the subsidiary is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.

The statement of income reflects the Parent Company’s share of the results of operations of the subsidiary. Any change in OCI of the investee is presented as part of the Group and the Parent Company’s OCI. In addition, when there has been a change recognized directly in the equity of the subsidiary, the Parent Company recognizes its share of any changes, when applicable, in the statement of changes in equity.

The aggregate of the Parent Company’s share of profit or loss of a subsidiary is shown on the face of the statement of income under ‘Share in net income (loss) of a subsidiary’ and represents profit or loss after tax in the subsidiary.

The financial statements of the subsidiary are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Parent Company determines whether it is necessary to recognize an impairment loss on its investment in a subsidiary. At each statement of financial position date, the Parent Company determines whether there is objective evidence that the investment in a subsidiary is impaired. If there is such evidence, the Parent Company calculates the amount of impairment as the difference between the recoverable amount of the subsidiary and its carrying value, then recognizes the loss in the statement of income.

Upon loss of control over the subsidiary, the Parent Company measures and recognizes any retained investment at its fair value.

As of December 31, 2017 and 2016, the sole and wholly owned subsidiary of the Parent Company is LSB (see Note 9). 86 *SGVFS028612* Property and Equipment Land is stated at cost less any impairment in value. Depreciable property and equipment are carried at cost less accumulated depreciation and amortization, and any impairment in value.

The initial cost of property and equipment consists of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged against operations in the year the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the depreciable assets. Leasehold improvements are amortized over the shorter of the terms of the covering leases and the estimated useful lives of the improvements.

The estimated useful lives of property and equipment follow:

Building 25 years Transportation equipment 5 years Leasehold improvements 5 years Furniture, fixtures and equipment 3 to 5 years

The useful lives and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property and equipment.

The carrying values of the property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, an impairment loss is recognized in the statement of income (see accounting policy on Impairment of Non-financial Assets).

An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized.

Investment Properties Investment properties are measured initially at cost, including transaction costs. Transaction costs represent nonrefundable taxes such as capital gains tax and documentary stamp tax that are for the account of the Group. An investment property acquired through an exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured in which case the investment property acquired is measured at the carrying amount of asset given up. Foreclosed properties are classified as ‘Investment properties’ upon: a) entry of judgment in case of judicial foreclosure; b) execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or c) notarization of the Deed of Dacion in case of dation in payment (dacion en pago).

87 *SGVFS028612* The difference between the fair value of the asset acquired and the carrying amount of the asset given up is recognized as ‘Gain (loss) on initial recognition of investment properties’ under ‘Miscellaneous income’ in the statement of income.

Subsequent to initial recognition, depreciable investment properties are carried at cost less accumulated depreciation and any impairment in value.

Investment properties are derecognized when they have either been disposed of or when they are permanently withdrawn from use and no future benefit is expected from their disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of income under ‘Miscellaneous income’ in the year of retirement or disposal.

Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are normally charged against income in the year in which the costs are incurred.

Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of acquisition of the investment properties but not to exceed ten (10) years for buildings and condominium units.

Transfers are made to investment properties when, and only when, there is a change in use evidenced by ending of owner occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is a change in use evidenced by commencement of owner occupation or commencement of development with a view to sale.

For a transfer from investment property to owner-occupied property, the deemed cost of the property for subsequent accounting is its carrying value at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in compliance with the policy stated under property and equipment up to the date of change in use.

Other Assets - Repossessed Chattels Repossessed chattels represent other properties acquired in settlement of loan receivables comprising mainly of repossessed vehicles. Repossessed chattels are stated at cost less accumulated depreciation and impairment in value. Depreciation is calculated on a straight-line basis using the remaining useful lives of the vehicles from the time of acquisition. The useful lives of repossessed chattels are estimated to be three (3) to five (5) years.

Business Combinations and Goodwill Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognized directly in the statement of income in the year of acquisition.

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Parent Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.

88 *SGVFS028612* Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if event or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated at each of the Parent Company’s cash-generating units (CGUs) or group of CGUs, which are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger that an operating segment in accordance with PFRS 8, Operating Segments.

Where goodwill has been allocated to a CGU and part of the operation within the unit is disposed of, the goodwill associated with the operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.

When subsidiaries are sold, the difference between the selling price and net assets plus cumulative translation differences and goodwill is recognized in the statement of income.

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of income in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each statement of financial position date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as change in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of income consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the CGU level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of income when the asset is derecognized.

89 *SGVFS028612* Branch licenses Branch licenses arise from the acquisition of branches and lincenses of a local bank by the Parent Company. The Parent Company’s branch licenses have indefinite useful lives and are subject to annual individual impairment testing. These are tested for impairment annually either individually or at the CGU level. Such intangibles are not amortized. The useful life is reviewed annually to determine whether indefinite useful life assessment continues to be supportable. If not, the change in the useful life from indefinite to finite is made on a prospective basis.

Software costs Software costs are carried at cost less accumulated amortization and any impairment loss. Software costs are amortized on a straight-line basis over the estimated useful life which ranges from three (3) to seven (7) years.

Impairment of Non-financial Assets Property and equipment, investment in a subsidiary, investment properties and repossessed chattels At each statement of financial position date, the Group assesses whether there is any indication that its non-financial assets may be impaired. When an indicator of impairment exists or when an annual impairment testing for an asset is required, the Group makes a formal estimate of recoverable amount.

Recoverable amount is the higher of an asset’s (or CGU’s) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the CGU to which it belongs. Where the carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or CGU).

An impairment loss is charged to operations in the year in which it arises. An assessment is made at each statement of financial position date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset (or CGU) is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income. After such a reversal, the depreciation and amortization expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life.

Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually at the statement of financial position date either individually or at the CGU level, as appropriate. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Revenue Recognition Revenue is recognized to the extent that it is probable that future economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. The Group concluded that it is acting as a principal in all of its revenue arrangements except for commission income arrangements.

90 *SGVFS028612* The following specific recognition criteria must also be met before revenue is recognized:

Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments, interest income is recorded at the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ‘Interest income’.

Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original EIR applied to the new carrying amount.

Interest income - finance lease The excess of aggregate lease rentals plus the estimated residual value over the cost of the leased investment property constitutes the unearned lease income. Residual values represent estimated proceeds from the disposal of investment property at the time lease is estimated. The unearned lease income is amortized over the term of the lease, commencing on the month the lease is executed using the EIR method.

Unearned lease income ceases to be amortized when the lease contract receivables become past due for more than three months.

Service fees and commission income Fees earned for the provision of services over a period of time are accrued over that period. These fees include investment fund fees, custodian fees, fiduciary fees, portfolio fees, credit-related fees and other service and management fees. Fees on deposit-related accounts are recognized only upon collection or accrued when there is reasonable degree of certainty as to its collection.

Dividend income Dividend income, included in ‘Miscellaneous income’, is recognized when the Group’s right to receive payment is established.

Trading and securities gain (loss) - net Trading and securities gain (loss) - net represents results arising from disposal of AFS investments and trading activities including all gains and losses from changes in fair value of financial assets at FVPL.

Rental income Rental income arising from leased properties is accounted for on a straight-line basis over the lease terms on ongoing leases and is recorded in the statement of income under ‘Miscellaneous income’.

Income from sale of property and equipment, investment property and repossessed chattels Income from sale of property and equipment, investment property and repossessed chattels is recognized upon completion of the earning process and the collectability of the sales price is reasonably assured. 91 *SGVFS028612* Other income Other income is recognized when earned and is recorded under ‘Miscellaneous income’ in the statement of income.

Expense Recognition Expenses are recognized when it is probable that decrease in future economic benefits related to the decrease in asset or an increase in liability has occurred and that the decrease in economic benefits can be measured reliably. Expenses that may arise in the course of ordinary regular activities of the Group include, among others, the operating expenses on the Group’s operation.

Operating expenses Operating expenses constitute costs which arise in the normal business operation and are recognized when incurred.

Taxes and licenses This includes all other taxes, local and national, including gross receipts taxes (GRT), documentary stamp taxes, real estate taxes, licenses and permit fees and are recognized when incurred.

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. there is a change in contractual terms, other than a renewal or extension of the arrangement; b. a renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b).

Group as lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Any rental payments are accounted for on a straight-line basis over the lease term and included in ‘Occupancy and equipment-related costs’ in the statement of income.

Group as lessor Finance leases, where the Group transfers substantially all the risks and benefits incidental to ownership of the leased item to the lessee, are included in the statement of financial position under ‘Loans and receivables’ account. A lease receivable is recognized at an amount equal to the net investment in the lease. All income resulting from the receivables is included in ‘Interest income on loans and receivables’ in the statement of income.

Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in the year in which they are earned.

92 *SGVFS028612* Retirement Cost The Group has a noncontributory defined benefit retirement plan. The retirement cost of the Group is actuarially determined using the projected unit credit method. Under this method, the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.

Defined benefit costs comprise the following: ∂ Service cost ∂ Net interest on the net defined benefit liability or asset ∂ Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non- routine settlements are recognized as expense in the statement of income. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in the statement of income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain.

93 *SGVFS028612* Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of assets embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as ‘Interest expense’ in the statement of income.

Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of assets embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the financial statements when an inflow of economic benefits is probable.

Income Taxes Current tax Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the statement of financial position date.

Deferred tax Deferred tax is provided on all temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

∂ When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income; and ∂ In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused net operating loss carryover (NOLCO) and carryforward of unsed tax benefits from excess of the minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) . Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized, except:

∂ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income; and

94 *SGVFS028612* ∂ In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient future taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settles, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transactions either in OCI or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss.

Segment Reporting The Group’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. If the Group changes the structure of its internal organization in a manner that causes the composition of its reportable segment to change, the corresponding information for earlier periods, including interim periods, shall be restated unless the information is not available and the cost to develop it would be excessive. Financial information on business segments is presented in Note 27.

Events after the Reporting Period Post year-end events that provide additional information about the Group’s position at the statement of financial position date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

Standards Issued but not yet Effective Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Group does not expect that the future adoption of the said pronouncements will have a significant impact on its consolidated financial statements. The Group intends to adopt the following pronouncements when they become effective:

95 *SGVFS028612* Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and if other criteria are met. Early application of the amendments is permitted.

The amendments do not have any impact on the Group’s financial statements.

PFRS 9, Financial Instruments PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group has performed an assessment on the population of financial instruments impacted by the classification and measurement requirements of PFRS 9 and has developed impairment methodologies to support the calculation of expected credit losses (ECL) for qualified credit exposures. a. Classification and measurement PFRS 9 requires that the Group classifies debt instruments based on the contractual cash flow characteristics of the assets and the business model for managing those assets. These factors are determined whether the financial assets are measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL).

As a result of the application of the classification and measurement requirements of PFRS 9, debt securities currently held as AFS under PAS 39 are expected to be classified either at amotized cost for securities belonging to portfolios managed under a “hold-to-collect” (HTC) business model or at FVOCI with recycling to profit or loss for securities belonging to portfolios managed under a “hold-to-collect-sell” business model.

Loans and receivables are expected to be managed under an HTC business model and thus qualify for amortized cost measurement.

Quoted equity shares currently held as AFS are expected to be measured at FVTPL.

Investments in unquoted equity shares currently carried at cost under PAS 39 are intended to be held for the foreseeable future. As such, the Group intends to apply the option to present fair value changes for these investments in OCI. The Group is in the process of determining how to measure the fair value of these unquoted investments. b. Impairment PFRS 9 requires the Group to record ECL for all loans and other debt financial assets not classified as at FVTPL, together with loan commitments and financial guarantee contracts.

96 *SGVFS028612* Incurred loss versus expected credit loss methodology The impairment requirements under PAS 39 (incurred loss model) are significantly different from those under PFRS 9 (expected loss model). Under the incurred loss model, loan and investment assets are regarded as impaired if there is no longer reasonable assurance that the future cash flows related to them will be either collected in their entirety or when due. Under the expected loss methodology, impairment is more forward looking, in that a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognized. ECL represents credit losses that reflect an unbiased and probability-weighted amount which is determined by evaluating a range of possible outcomes, the time value of money and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. ECL allowances will be measured at amounts equal to either (i) 12-month ECL or (ii) lifetime ECL for those financial instruments which have experienced a significant increase in credit risk (SICR) since initial recognition (General Approach). The 12-month ECL is the portion of lifetime ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date. Lifetime ECL are credit losses that results from all possible default events over the expected life of a financial instrument.

Staging assessment PFRS 9 establishes a three-stage approach for impairment of financial assets, based on whether there has been a significant deterioration in the credit risk of a financial asset. These three stages then determine the amount of impairment to be recognized.

For non-credit-impaired financial instruments: ∂ Stage 1 is comprised of all financial instruments which have not experienced a SICR since initial recognition or is considered of low credit risk as of the reporting date. The Group recognizes a 12-month ECL for Stage 1 financial instruments. ∂ Stage 2 is comprised of all financial instruments which have experienced a SICR since initial recognition. The Group recognizes a lifetime ECL for Stage 2 financial instruments.

For credit-impaired financial instruments: ∂ Stage 3 is comprised of all financial assets that have objective evidence of impairment as a result of one or more loss events that have occurred after initial recognition with a negative impact on the estimated future cash flows of a loan or a portfolio of loans. The Group recognizes a lifetime ECL for Stage 3 financial instruments.

Definition of “default” and “restored” The Group generally classifies a financial instrument as in default when it is credit impaired, or becomes past due on its contractual payments for more than 90 days. As part of a qualitative assessment of whether a customer is in default, the Group considers a variety of instances that may indicate unlikeliness to pay. When such events occur, the Group carefully considers whether the event should result in treating the customer as defaulted. An instrument is considered to be no longer in default (i.e. restored) if there is sufficient evidence to support that full collection is probable and payments are received for at least six months.

Credit risk at initial recognition The Group uses internal credit assessment and approvals at various levels to determine the credit risk of exposures at initial recognition. Assessment can be quantitative or qualitative and depends on the materiality of the facility or the complexity of the portfolio to be assessed.

97 *SGVFS028612* Significant increase in credit risk The assessment of whether there has been a significant increase in credit risk is based on an increase in the probability of a default occurring since initial recognition. The SICR criteria vary by portfolio and include quantitative changes in probabilities of default and qualitative factors, including a backstop based on delinquency. The credit risk of a particular exposure is deemed to have increased significantly since initial recognition if, based on the Group’s internal credit assessment, the borrower or counterparty is determined to require close monitoring or with well-defined credit weaknesses. For exposures without internal credit grades, if contractual payments are more than a specified days past due threshold, the credit risk is deemed to have increased significantly since initial recognition. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. In subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no longer a SICR since initial recognition, the Group shall revert to recognizing a 12-month ECL.

ECL parameters and methodologies ECL is a function of the probability of default (PD), loss given default (LGD) and exposure at default (EAD), with the timing of the loss also considered, and is estimated by incorporating forward-looking economic information and through the use of experienced credit judgment.

The PD is an estimate of the likelihood of default over a 12-month horizon for Stage 1 or lifetime horizon for Stage 2. The PD for each individual instrument is modelled based on historic data and is estimated based on current market conditions and reasonable and supportable information about future economic conditions. The Group segmented its credit exposures based on homogenous risk characteristics and developed a corresponding PD methodology for each portfolio. The PD methodology for each relevant portfolio is determined based on the underlying nature or characteristic of the portfolio, behavior of the accounts and materiality of the segment as compared to the total portfolio.

LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from any collateral.

EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.

Forward-looking information The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. A broad range of forward-looking information are considered as economic inputs, such as GDP growth, exchange rate, interest rate, inflation rate and other economic indicators. The inputs and models used for calculating ECL may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays are occasionally made as temporary adjustments when such differences are significantly material.

The Group has determined that the financial and operational aspects of the ECL methodologies under PFRS 9 will have a significant impact to the 2018 consolidated financial statements. The Group plans to apply the sophisticated method on its large-scale and medium-scale businesses and motorcycle loans. Simplified approach using loss rate approach will be used for the remaining portfolios (i.e., home, auto, personal loans (secured and unsecured), microfinance and small-scale business).

98 *SGVFS028612* c. Hedge accounting The new hedge accounting model under PFRS 9 aims to simplify hedge accounting, align the accounting for hedge relationship more closely with an entity’s risk management activities and permit hedge accounting to be applied more broadly to a greater variety of hedging instruments and risks eligible for hedge accounting. The Group has assessed that the adoption of these amendment will not have any impact in the consolidated financial statements in 2018.

The Group has no existing hedge relationships that are currently designated in effective hedging relationships under PAS 39 and hence, it does not have an impact on the Group’s consolidated financial statements.

PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Group assessed that PFRS 15 may have an impact on revenue recognition for its credit card business. The Group plans to adopt the new standard on the required effective date assessing the impact of PFRS 15 and plans to adopt the new standard on the required effective date.

In addition, as the presentation and disclosure requirements in PFRS 15 are more detailed than under current PFRSs, the Group is currently assessing what necessary changes it needs to make on its current systems, internal controls, policies and procedures to enable the Group to collect and disclose the required information.

The recognition and measurement requirements in PFRS 15 also apply to gains or losses on disposal of nonfinancial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business. However, on transition, the effect of these changes is not expected to be material for the Group.

Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognized; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

99 *SGVFS028612* Amendments to PAS 40, Investment Property, Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. Retrospective application is only permitted if this is possible without the use of hindsight.

Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all assets, expenses and income in its scope that are initially recognized on or after the beginning of the reporting period in which the entity first applies the interpretation or the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation.

Effective beginning on or after January 1, 2019 Amendments to PFRS 9, Prepayment Features with Negative Compensation The amendments to PFRS 9 allow debt instruments with negative compensation prepayment features to be measured at amortized cost or fair value through other comprehensive income. An entity shall apply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted.

PFRS 16, Leases Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements. The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value. Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs.

The Group is currently assessing the impact of adopting PFRS 16.

Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures The amendments to PAS 28 clarify that entities should account for long-term interests in an associate or joint venture to which the equity method is not applied using PFRS 9. An entity shall apply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted.

100 *SGVFS028612* Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.

The interpretation specifically addresses the following:

∂ Whether an entity considers uncertain tax treatments separately ∂ The assumptions an entity makes about the examination of tax treatments by taxation authorities ∂ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates ∂ How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed.

The Group is currently assessing the impact of adopting this interpretation.

Deferred effectivity Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effective date of January 1, 2016 of the said amendments until the International Accounting Standards Board completes its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

3. Significant Accounting Judgments and Estimates

The preparation of the Group’s consolidated financial statements requires the management of the Group and the Parent Company to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosures of contingent assets and contingent liabilities at the statement of financial position date. Future events may occur which can cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

101 *SGVFS028612* The following are the critical judgments and key assumptions that have a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Judgments a) HTM investments The classification under HTM investments requires significant judgment. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than in certain specific circumstances, as discussed in Note 2, it will be required to reclassify the entire portfolio as AFS investments. The investments would therefore be measured at fair value and not at amortized cost.

On January 24, 2017, the Parent Company sold a significant portion of its HTM investment with a carrying value of =300.0P million. Accordingly, the Group reclassified its remaining HTM investments to AFS investment (see Note 7). b) Leases Operating lease Group as lessee The Group has entered into commercial property leases for its head office and branch premises. The Group has determined, based on the evaluation of the terms and conditions of the lease agreement (i.e., the lease does not transfer ownership of the asset to the lessee by the end of the lease term and lease term is not for the major part of the asset’s economic life), that the lessor retains all the significant risks and rewards of ownership of the properties which are leased out on operating leases. c) Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, these are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.

These judgments may include consideration of liquidity and model inputs such as correlation and volatility for longer dated derivatives (see Note 5). d) Contingencies The Group is currently involved in legal proceedings. The estimate of the probable cost for the resolution of claims has been developed in consultation with the aid of the outside legal counsel handling the Group’s defense in this matter and is based upon an analysis of potential results. Management does not believe that the outcome of this matter will affect the results of operations.

It is probable, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Note 26).

Estimates a) Credit losses on loans and receivables The Group reviews its loans and receivables at each statement of financial position date to assess whether a credit loss should be recorded in the statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors such as condition of the counterparty, observable market prices and estimated 102 *SGVFS028612* net selling prices of the collaterals. The use of assumptions could produce significantly different estimates of provision for credit losses.

The carrying values of and allowance for credit losses on loans and receivables of the Group and of the Parent Company as of December 31, 2017 and 2016 are disclosed in Note 8. b) Impairment of AFS debt securities The Group reviews its debt securities classified as AFS investments at each statement of financial position date to assess whether they are impaired. This requires similar judgment applied to the individual assessment of loans and receivables.

The carrying values of AFS debt securities of the Group and of the Parent Company as of December 31, 2017 and 2016 are disclosed in Note 7. c) Impairment of non-financial assets Investment properties and repossessed chattels The Group assesses impairment on investment properties and repossessed chattels whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: a. significant underperformance relative to expected historical or projected future operating results; b. significant changes in the manner of use of the acquired assets or the strategy for overall business; and c. significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is computed using the fair value less costs to sell for investment properties and repossessed chattels. Recoverable amounts are estimated for individual assets.

The carrying values of and the allowance for impairment losses, if any, on investment properties and repossessed chattels of the Group and of the Parent Company are disclosed in Notes 11, 13 and 14.

Branch licenses Branch license is considered an intangible asset with an indefinite useful life and it is required to be tested for impairment annually by comparing its carrying amount with its recoverable amount, irrespective of whether there is any indication that it may be impaired.

No additional impairment was recognized for the Group’s branch licenses in 2017 and 2016. The carrying amounts of branch licenses as of December 31, 2017 and 2016 approximate their respective fair values less cost to sell. As of December 31, 2017 and 2016, the licensing fee for a branch license of a commercial and trift banks is =20.00P million and =15.00P million, respectively, as published by the BSP. The carrying values of and allowance for impairment losses on branch licenses of the Group are disclosed in Note 12.

Goodwill Goodwill is reviewed for impairment, annually or more frequently if events of changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has been allocated, an 103 *SGVFS028612* impairment loss is recognized immediately in the statement of income. The Group estimated the discount rate used for the computation of the net present value be referenced to industry cost of capital. The recoverable amount of the CGU has been determined based on a value in use calculations using cash flow projections from financial budgets approve by senior management covering a five-year period. Average growth rate was derived from the average increase in annual income during the last five (5) years. Key assumptions used in the value in use calculation are pre-tax discount rate and growth rate, which are at 9.4% and 5.0%, respectively in 2017 and 8.9% and 4.5%, respectively, in 2016. Management believes that no reasonably possible change in any of the key assumptions used would cause the carrying value of the CGUs to exceed their recoverable amount.

The carrying values of goodwill of the Group are disclosed in Note 9.

d) Recoverability of deferred taxes Deferred tax assets are recognized for temporary differences, unused tax losses and excess of MCIT over RCIT to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits available which is primarily derived from interest income on loans and receivables and affected by expected future market or economic conditions and the expected performance of the Group and the Parent Company together with future tax planning strategies.

The estimates of future taxable income indicate that certain temporary differences will be realized in the future. The primary source of the income of the Group and Parent Company is coming from interest income from loans and receivables, Management uses historical information and future economic conditions as basis of growth in projecting furture taxable income. Details of recognized and unrecognized deferred tax on temporary differences are disclosed in Note 23.

e) Present value of retirement liability The cost of defined benefit retirement plan and other post-employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. The assumed discount rates were determined using market yields on Philippine government bonds with terms consistent with the expected employee benefit payouts as of the statement of financial position date.

The present values of the Group and the Parent Company’s defined benefit obligation as of December 31, 2017 and 2016 are disclosed in Note 20.

4. Financial Risk Management Objectives and Polices

The main risks arising from the Group’s financial instruments are credit, market and liquidity risks. In general, the Group’s risk management objective is to ensure that risks taken are within the Group’s risk appetite, which is assessed based on the Group’s capital adequacy framework. The risk management process involves risk identification, measurement, monitoring and control.

104 *SGVFS028612* The Group recognizes that risk management is the responsibility of the entire organization. Accordingly, all employees are expected to manage risks relating to their own responsibilities.

The Board of Directors (BOD) ultimately oversees and approves significant matters related to risk management throughout the Parent Company, upon the review and recommendation of various committees composed of members of the BOD and Senior Management. Among the Parent Company’s committees are: ∂ Corporate Governance Committee, which ensures the BOD’s effectiveness and due observance of the corporate governance principles and guidelines; ∂ Risk Management Committee (RMC), which is responsible for the development and oversight of the Parent Company’s risk management program; ∂ Audit Committee, which examines the Parent Company’s framework of risk management, control and governance process to ensure that these are adequate and functional; and ∂ Credit Committee, which recommends credit policies and evaluates credit applications.

The following units within the Parent Company jointly perform risk management functions on a daily basis: ∂ Compliance for regulatory risk; ∂ Treasury for funding and liquidity risk; ∂ Credit Cycle Operations for credit risk; ∂ Enterprise Risk Management Unit (ERMU) for various risks, including market risk; credit and operational risks; and ∂ Internal Audit for the evaluation of the adequacy of internal control systems, covering operational risk.

These units submit various risk reports to the Management Committee, the RMC and the BOD, among others.

Further specific risk management disclosures, including mitigation, measurement and control, are in the succeeding sections.

Credit Risk Credit risk may be defined as the possibility of loss due to the failure of a customer/borrower or counterparty to perform its obligation to the Group.

The Group has several credit risk mitigation practices: ∂ The Group offers a variety of loan products with substantial collateral values. The latter part of this credit risk section discusses collateral and other credit enhancements. ∂ Limits are set on the amount of credit risk that the Group is willing to take for customers and counterparties, and exposures are monitored against such credit limits. ∂ The Group also observes related regulatory limits such as the single borrower’s limit (SBL) and directors, officers, stockholders and related interests (DOSRI) ceiling. ∂ To protect against settlement risk, the Group employs a delivery-versus-payment (DvP) settlement system, wherein payment is effected only when the corresponding asset has been delivered. ∂ There is an internal credit risk rating system (ICRRS) in place, providing a structured format for collating and analyzing borrower data to arrive at a summary indicator of credit risk. ∂ Past due and non-performing loan (NPL) ratios are also used to measure and monitor the quality of the loan portfolio.

105 *SGVFS028612* Maximum exposure to credit risk The table below shows the Group’s net credit risk exposure for financial assets with maximum exposure to credit risk different from its carrying amounts after considering the financial effect of collateral and other credit enhancements: Consolidated December 31,2017 Financial Maximum Carrying Fair Value Effect of Exposure to Amount of Collateral Collateral Credit Risk Interbank loans receivables and SPURA P=3,327,394,739 P=3,327,489,092 P=3,327,394,739 P=− Loans and receivables: Receivables from customers: Commercial 40,412,923,442 10,042,461,350 9,794,907,859 30,618,015,583 Real estate 9,262,200,856 10,935,591,701 7,751,533,944 1,510,666,912 Consumption 6,448,382,095 2,958,789,941 2,624,705,583 3,823,676,512 Domestic bills purchased 498,529,953 498,012,697 498,012,697 517,256 Other receivables: Accrued interest receivable 589,739,369 − − 589,739,369 Accounts receivable 399,368,988 − − 399,368,988 Sales contract receivable 33,526,920 58,665,845 32,646,220 880,700 Lease receivable 9,101,014 − − 9,101,014 P=60,981,167,376 P=27,821,010,626 P=24,029,201,042 P=36,951,966,334

Parent Company December 31, 2017 Maximum Carrying Fair Value Financial Effect Exposure to Amount of Collateral of Collateral Credit Risk Interbank loans receivables and SPURA P=2,868,924,517 P=2,869,018,870 P=2,868,924,517 P=− Loans and receivables: Receivables from customers: Commercial 40,201,779,860 10,006,152,381 9,785,239,701 30,416,540,159 Real estate 9,257,811,185 10,919,759,585 7,749,028,357 1,508,782,828 Consumption 5,729,995,371 2,667,637,491 2,622,199,996 3,107,795,375 Domestic bills purchased 498,529,953 498,012,697 498,012,697 517,256 Other receivables: Accrued interest receivable 577,182,673 − − 577,182,673 Accounts receivable 390,497,519 − − 390,497,519 Sales contract receivable 3,137,952 2,669,313 2,257,252 880,700 P=59,527,859,030 P=26,963,250,337 P=23,525,662,520 P=36,002,196,510

Consolidated December 31,2016 Financial Maximum Carrying Fair Value Effect of Exposure to Amount of Collateral Collateral Credit Risk Interbank loans receivables and SPURA P=677,831,467 P=678,183,563 P=677,831,467 P=− Loans and receivables: Receivables from customers: Commercial 27,331,833,356 3,249,062,324 2,966,644,526 24,365,188,830 Real estate 5,749,265,920 9,248,284,662 5,001,508,450 747,757,470 Consumption 4,947,385,457 1,838,552,078 1,448,140,640 3,499,244,817 Domestic bills purchased 118,938,689 118,938,689 118,938,689 − Other receivables: Accrued interest receivable 449,277,836 − − 449,277,836 Accounts receivable 246,343,633 − − 246,343,633 Sales contract receivable 45,422,449 82,823,176 45,417,018 5,431 Lease receivable 8,614,547 − − 8,614,547 P=39,574,913,354 P=15,215,844,492 P=10,258,480,790 P=29,316,432,564

106 *SGVFS028612* Parent Company December 31, 2016 Maximum Carrying Fair Value Financial Effect Exposure to Amount of Collateral of Collateral Credit Risk Interbank loans receivables and SPURA P=589,077,515 P=589,429,611 P=589,077,515 P=− Loans and receivables: Receivables from customers: Commercial 27,050,142,616 2,918,119,752 2,886,232,383 24,163,910,233 Real estate 5,744,776,460 9,222,332,686 4,995,240,348 749,536,112 Consumption 4,368,578,085 1,799,141,716 1,434,279,220 2,934,298,865 Domestic bills purchased 118,938,689 118,938,689 118,938,689 − Other receivables: Accrued interest receivable 423,384,811 − − 423,384,811 Accounts receivable 229,641,157 − − 229,641,157 Sales contract receivable 33,887,590 36,123,275 33,882,159 5,431 P=38,558,426,923 P=14,684,085,729 P=10,057,650,314 P=28,500,776,609

Offsetting of financial assets and financial liabilities The Parent Company has derivative financial instruments with various counterparties transacted under the International Swaps and Derivatives Association (ISDA) which are subject to enforceable master netting agreements. Under the agreements, the Parent Company has the right to settle its derivative financial instruments either: (1) upon election of the parties; or (2) in the case of default and insolvency or bankruptcy. The Parent Company, however, has no intention to net settle or to gross settle the accounts simultaneously.

The following table shows the effect of rights of set-off associated with the recognized financial assets and financial liabilities of the Parent Company:

Gross amounts Effect of remaining rights of set-off in Net amount set-off that do not meet PAS 32 Gross amounts of accordance with presented in offsetting criteria recognized the PAS 32 statements of financial offsetting financial Financial Financial instruments criteria position instruments collateral Net exposure 2017 Financial Assets Derivative assets (Note 6) P=32,870 P=− P=32,870 P=− P=− P=32,870 SPURA 2,445,174,517 − 2,445,174,517 − 2,445,174,517 − P=2,445,207,387 P=− P=2,445,207,387 P=− P=2,445,174,517 P=32,870 Financial Liabilities Derivative liabilities P=5,904,377 P=− P=5,904,377 P=− P=− P=5,904,377 2016 Financial Assets Derivative assets P=1,322,995 P=− P=1,322,995 P=− P=− P=1,322,995 SPURA 493,077,515 − 493,077,515 − 493,077,515 − P=494,400,510 P=− P=494,400,510 P= − P=493,077,515 P=1,322,995 Financial Liabilities Derivative liabilities P=7,447,751 P=– P=7,447,751 P=− P=7,447,751 P=−

Collateral and other credit enhancement The amount and type of collateral required depends on an assessment of credit risk. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

∂ Mortgages over real estate and vehicle for consumer lending ∂ Chattels over inventory and receivable for commercial lending ∂ Government securities for interbank lending

107 *SGVFS028612* It is the Group’s policy to dispose repossessed properties in an orderly fashion. In general, the proceeds are used to reduce or repay the outstanding claim, and are not occupied for business use.

Concentration of credit Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry.

The tables below show the distribution of maximum exposure to credit risk by industry sector of the Group before taking into account collateral held and other credit enhancements (in millions):

Consolidated 2017 Loans and Investment Receivables* Securities** Total Government institutions P=18,510 P=12,563 P=31,073 Real estate, renting and business services 13,465 3,238 16,703 Financial intermediaries 10,043 1,411 11,454 Wholesale and retail 9,277 − 9,277 Personal Consumption 6,373 802 7,175 Electricity, gas and water 5,907 495 6,402 Transport, storage and communication 5,630 420 6,050 Manufacturing 5,240 − 5,240 Construction 826 − 826 Agriculture, hunting and forestry 816 − 816 Others 5,885 110 5,995 81,972 19,039 101,011 Less allowance for credit losses 1,103 − 1,103 P=80,869 P=19,039 P=99,908 * All financial assets other than investment securities and cash on hand (net of UID) ** Financial assets at FVPL and AFS investments

Parent Company 2017 Loans and Investment Receivables* Securities** Total Government institutions P=18,114 P=12,412 P=30,526 Real estate, renting and business services 13,338 3,223 16,561 Financial intermediaries 9,512 1,430 10,942 Wholesale and retail 9,177 − 9,177 Personal Consumption 6,373 802 7,175 Electricity, gas and water 5,907 495 6,402 Transport, storage and communication 5,630 420 6,050 Manufacturing 5,240 − 5,240 Construction 676 − 676 Agriculture, hunting and forestry 816 − 816 Others 5,155 75 5,230 79,938 18,857 98,795 Less allowance for credit losses 990 − 990 P=78,948 P=18,857 P=97,805 * All financial assets other than investment securities and cash on hand (net of UID) ** Financial assets at FVPL and AFS investments

108 *SGVFS028612* Consolidated 2016 Loans and Investment Receivables* Securities** Total Government institutions P=12,924 P=8,383 P=21,307 Financial intermediaries 9,632 1,168 10,800 Real estate, renting and business services 9,203 2,235 11,438 Wholesale and retail 7,554 − 7,554 Personal consumption 5,059 51 5,110 Electricity, gas and water 3,895 1,425 5,320 Manufacturing 3,649 597 4,246 Transport, storage and communication 1,778 436 2,214 Agriculture, hunting and forestry 617 49 666 Construction 583 562 1,145 Others 3,157 61 3,218 58,051 14,967 73,018 Less allowance for credit losses 913 − 913 P=57,138 P=14,967 P=72,105 All financial assets other than investment securities and cash on hand (net of UID) ** Financial assets at FVPL, AFS and HTM investments

Parent Company 2016 Loans and Investment Receivables* Securities** Total Government institutions P=12,924 P=8,383 P=21,307 Real estate, renting and business services 9,058 2,235 11,293 Financial intermediaries 8,755 1,003 9,758 Wholesale and retail 7,788 − 7,788 Personal consumption 4,037 51 4,088 Electricity, gas and water 3,895 1,424 5,319 Manufacturing 3,649 597 4,246 Transport, storage and communication 1,778 436 2,214 Construction 583 562 1,145 Agriculture, hunting and forestry 530 34 564 Others 3,132 26 3,158 56,129 14,751 70,880 Less allowance for credit losses 797 − 797 P=55,332 P=14,751 P=70,083 * All financial assets other than investment securities and cash on hand (net of UID) ** Financial assets at FVPL, AFS and HTM investments

Credit quality Parent Company For receivables from customers, the Parent Company’s internal credit risk rating (ICRR) system wasapproved in 2007 and further enhanced to reflect latest updates. Last enhancement was made in 2017for the ICRRS covering corporate credit exposures as defined by BSP Circular 439, initially for thoseborrowers with asset size of more than P=15.00 million. In compliance with BSP Circular 855, the Parent Company also developed another ICRRS in 2016 for those borrowers with asset size of P=15.00 million and Below which was also enhanced in 2017.

109 *SGVFS028612* The Parent Company’s ICRR is as follows:

Grades Categories Description High grade Risk rating 1 Excellent Lowest probability of default; exceptionally strong capacity for financial commitments; highly unlikely to be adversely affected by foreseeable events. Risk rating 2 Super Prime Very low probability of default; very strong capacity for payment of financial commitments; less vulnerable to foreseeable events. Risk rating 3 Prime Low probability of default; strong capacity for payment of financial commitments; may be more vulnerable to adverse business/economic conditions. Risk rating 4 Very Good Moderately low probability of default; more than adequate capacity for payment of financial commitments; but adverse business/economic conditions are more likely to impair this capacity. Risk rating 5 Good More pronounced probability of default; business or financial flexibility exists which supports the servicing of financial commitments; vulnerable to adverse business/economic changes. Standard Risk rating 6 Satisfactory Material probability of default is present, but a margin of safety remains; financial commitments are currently being met although the capacity for continued payment is vulnerable to deterioration in the business/economic condition. Risk rating 7 Average Greater probability of default which is reflected in the volatility of earnings and overall performance; repayment source is presently adequate; however, prolonged unfavorable economic period would create deterioration beyond acceptable levels. Risk rating 8 Fair Sufficiently pronounced probability of default, although borrowers should still be able to withstand normal business cycles; any prolonged unfavorable economic/market conditions would create an immediate deterioration of cash flow beyond acceptable levels. Sub-standard grade Risk rating 9 Marginal Elevated level of probability of default, with limited margin; Repayment source is adequate to marginal. Risk rating 10 Watchlist Unfavorable industry or company specific risk factors represent a concern, financial strength may be marginal; will find it difficult to cope with significant downturn. Risk rating 11 Special mention Loans have potential weaknesses that deserve close attention; borrower has reached a point where there is a real risk that the borrower’s ability to pay the interest and repay the principal timely could be jeopardize due to evidence of weakness in the borrower’s financial condition.

110 *SGVFS028612* Grades Categories Description Risk rating 12 Substandard Substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics; with well-defined weakness(es) that jeopardize their liquidation. e.g. negative cash flow, in case of fraud. Past due and impaired Risk rating 13 Doubtful Weaknesses similar to “Substandard”, but with added characteristics that make liquidation highly improbable. Risk rating 14 Loss Uncollectible or worthless.

The Parent Company’s ICRR system intends to provide a structure to define the credit portfolio, and consists of an initial rating for the borrower risk adjusted for the facility risk. Inputs include an assessment of management, credit experience, financial condition, industry outlook, documentation, security and term.

The following tables show the credit quality per class of loans and receivables, gross of allowance for credit losses and unearned interest and discount of the Group and Parent Company (in millions):

Consolidated 2017 Neither past due nor individually impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Receivables from customers: Commercial P=22,533 P=16,815 P=1,141 P=88 P=37 P=430 P=41,044 Real estate 24 9,326 5 − 70 5 9,430 Consumption 23 6,213 29 − 513 69 6,847 Domestic bills purchased 499 − − − − − 499 Other receivables: Accrued interest receivable 156 334 6 88 42 37 663 Accounts receivable − 376 − − 90 − 466 Sales contract receivable − 26 − − 5 3 34 Lease receivable − 9 − − − − 9 P=23,235 P=33,099 P=1,181 P=176 P=757 P=544 P=58,992

Parent Company 2017 Neither past due nor individually impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Receivables from customers: Commercial P=22,533 P=16,684 P=1,140 P=88 P=24 P=386 P=40,855 Real estate 24 9,322 5 − 70 − 9,421 Consumption 23 5,525 2 − 409 − 5,959 Domestic bills purchased 498 − − − − − 498 Other receivables: Accrued interest receivable 156 329 5 88 35 19 632 Accounts receivable − 360 − − 90 − 450 Sales contract receivable − − − − 3 1 4 P=23,234 P=32,220 P=1,152 P=176 P=631 P=406 P=57,819

111 *SGVFS028612* Consolidated 2016 Neither past due nor individually impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Receivables from customers: Commercial P=13,022 P=10,605 P=1,451 P=1,816 P=32 P=894 P=27,820 Real estate − 5,688 − − 67 8 5,763 Consumption − 2,963 28 − 1,979 248 5,218 Domestic bills purchased 139 − − − − − 139 Other receivables: Accrued interest receivable − 208 1 − 254 31 494 Accounts receivable − 156 − − 184 8 348 Sales contract receivable − 39 − − 9 2 50 Lease receivable − 9 − − − − 9 P=13,161 P=19,668 P=1,480 P=1,816 P=2,525 P=1,191 P=39,841

Parent Company 2016 Neither past due nor impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Receivables from customers: Commercial P=13,022 P=10,633 P=1,447 P=1,816 P=32 P=553 P=27,503 Real estate − 5,685 − − 67 − 5,752 Consumption − 2,585 − − 1,979 − 4,564 Domestic bills purchased 139 − − − − − 139 Other receivables: Accrued interest receivable − 201 − − 254 − 455 Accounts receivable − 140 − − 184 − 324 Sales contract receivable − 33 − − 5 − 38 P=13,161 P=19,277 P=1,447 P=1,816 P=2,521 P=553 P=38,775

External ratings In ensuring a quality investment portfolio, the Parent Company monitors credit risk from investments using credit ratings based on Moody’s Investors Service (Moody’s rating).

Credit quality of due from BSP and other banks and interbank loans receivable are based on available accredited international and local credit raters using Fitch as standard of rating.

The Parent Company assigns the following credit quality groupings based on Fitch Ratings and Moody’s rating as follows:

Credit Quality Fitch Moody’s High Grade AAA to A- Aaa to A3 Standard Grade BBB+ to BB- Baa1 to Ba3 Substandard Grade B+ to C- B1 to Ca Past due and impaired D C

112 *SGVFS028612* The following tables show the credit quality per class of financial assets other than receivables from customers and other receivables of the Group and Parent Company (in millions):

Consolidated 2017 Neither past due nor impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Financial assets at FVPL P=48 P=− P=− P=− P=− P=− P=48 AFS investments: Government securities − 12,502 − − − − 12,502 Private bonds − 6,489 − − − − 6,489 Loans and receivables: Due from BSP − 16,018 − − − − 16,018 Due from other banks − 3,820 − − − − 3,820 Interbank loans receivable and SPURA − 3,327 − − − − 3,327 Other assets: Refundable deposits − 49 − 1 − − 50 P=48 P=42,205 P=− P=1 P=− P=− P=42,254

Parent Company 2017 Neither past due nor impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Financial assets at FVPL P=48 P=− P=− P=− P=− P=− P=48 AFS investments: Government securities − 12,364 − − − − 12,364 Private bonds − 6,445 − − − − 6,445 Loans and receivables: Due from BSP − 15,621 − − − − 15,621 Due from other banks − 3,749 − − − − 3,749 Interbank loans receivable and SPURA − 2,869 − − − − 2,869 Other assets: Refundable deposits − 49 − − − − 49 P=48 P=41,097 P=− P=− P=− P=− P=41,145

Consolidated 2016 Neither past due nor impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Financial assets at FVPL P=3 P=− P=− P=− P=− P=− P=3 AFS investments: Government securities − 8,192 − − − − 8,192 Private bonds − 1,178 − 2,044 − − 3,222 HTM investment 190 3,185 − 175 − − 3,550 Loans and receivables: Due from BSP − 13,416 − − − − 13,416 Due from other banks − 3,979 − 111 − − 4,090 Interbank loans receivable and SPURA − 678 − − − − 678 Other assets: Refundable deposits − 56 − 1 − − 57 P=193 P=30,684 P=− P=2,331 P=− P=− P=33,208

113 *SGVFS028612* Parent Company 2016 Neither past due nor impaired Past due but not High Standard Substandard Individually Individually Grade Grade Grade Unrated Impaired Impaired Total Financial assets at FVPL P=3 P=− P=− P=− P=− P=− P=3 AFS investments: Government securities − 8,192 − − − − 8,192 Private bonds − 1,178 − 2,044 − − 3,222 HTM investment 190 2,970 − 175 − − 3,335 Loans and receivables: Due from BSP − 12,722 − − − − 12,722 Due from other banks − 3,884 − 111 − − 3,995 Interbank loans receivable and SPURA − 589 − − − − 589 Other assets: Refundable deposits − 56 − − − − 56 P=193 P=29,591 P=− P=2,330 P=− P=− P=32,114

As of December 31, 2017 and 2016, the Group’s and Parent Company’s commitments amounting to P=820.83 million and P=501.32 million, respectively, have a risk rating class of Standard Grade (see Note 26).

Aging analysis of past due but not individually impaired loans and receivables per class The tables below show the aging analysis of past due but not individually impaired loans and receivables per class of the Group (in millions):

Consolidated 2017 Less than 30 to 60 61 to 90 91 days 30 days days days to 1 year Over 1 year Total Receivables from customers: Consumption P=14 P=19 P=25 P=146 P=309 P=513 Real estate 7 2 2 26 33 70 Commercial 2 1 4 4 26 37 Other receivables: Accrued interest receivable 40 − − 2 − 42 Accounts receivable 11 2 − 11 66 90 Sales contract receivable 2 − − 2 1 5 P=76 P=24 P=31 P=191 P=435 P=757

Parent Company 2017 Less than 30 to 60 61 to 90 91 days 30 days Days days to 1 year Over 1 year Total Receivables from customers: Consumption P=14 P=19 P=25 P=42 P=309 P=409 Real estate 7 2 2 26 33 70 Commercial 22 − − 2 − 24 Other receivables: Accrued interest receivable 2 1 2 4 26 35 Accounts receivable 11 2 − 11 66 90 Sales contract receivable 2 − − − 1 3 P=58 P=24 P=29 P=85 P=435 P=631

114 *SGVFS028612* Consolidated 2016 Less than 30 to 60 61 to 90 91 days 30 days days days to 1 year Over 1 year Total Receivables from customers: Consumption P=1,460 P=37 P=28 P=384 P=70 P=1,979 Real estate 9 12 3 39 4 67 Commercial − − − 32 − 32 Other receivables: Accrued interest receivable 205 2 4 26 17 254 Accounts receivable 126 4 2 8 44 184 Sales contract receivable 4 − − − 5 9 P=1,804 P=55 P=37 P=489 P=140 P=2,525

Parent Company 2016 Less than 30 to 60 61 to 90 91 days 30 days Days days to 1 year Over 1 year Total Receivables from customers: Consumption P=1,460 P=37 P=28 P=386 P=68 P=1,979 Real estate 9 12 3 39 4 67 Commercial − − − 30 2 32 Other receivables: Accrued interest receivable 205 2 4 26 17 254 Accounts receivable 126 4 2 8 44 184 Sales contract receivable − − − − 5 5 P=1,800 P=55 P=37 P=489 P=140 P=2,521

Liquidity Risk Liquidity risk may be defined as the possibility of loss due to the Group’s inability to meet its financial obligations when they become due. Liquidity risk is considered in the Group’s assets and liabilities management. The Group seeks to lengthen liability maturities, diversify existing fund sources, and continuously develop new instruments that cater to different segments of the market. The Parent Company’s Assets and Liabilities Committee (ALCO) is composed of some members of the Senior Management including the Lending Groups and Treasury Group Heads. ALCO conducts weekly meetings. The Parent Company also has specialized units that help monitor market and regulatory developments pertinent to interest rates and liquidity position, as well as prepare cash position reports as needed to measure the liquidity and reserves position of the Parent Company. The Parent Company also keeps credit lines with financial institutions, as well as a pool of liquid or highly marketable securities. Reserves management is another specialized function within the Bank, complying with BSP reserve requirements, which may be a buffer against unforeseen liquidity drains. The liquidity or maturity gap report is another tool for measuring liquidity risk. Although available contractual maturity dates are generally used for putting instruments into time bands, expected liquidation periods, often based on historical data, are used if contractual maturity dates are unavailable. The liquidity gap per time band is computed by getting the difference between the inflows and outflows within the time band. A positive liquidity gap is an estimate of the Group’s net excess funds for the time band. A negative liquidity gap is an estimate of a future funding requirement of the Group. Although such gaps are a normal part of the business, a significant negative amount may bring significant liquidity risk. To help control liquidity risk arising from negative liquidity gaps, maximum cumulative outflow (MCO) targets are set for time bands up to one (1) year.

115 *SGVFS028612* Analysis of financial instruments by remaining maturities The table below summarized the maturity profile of the Group’s financial instruments based on contractual undiscounted cash flows except for financial assets at FVPL which and based on expected disposal (in millions):

Consolidated 2017 Up to Over 3 up Over 1 to On demand 3 months to 12 months 5 Years Over 5 years Total Financial Assets Cash and other cash items P=1,639 P=– P=– P=– P=– P=1,639 Due from BSP 15,236 782 – – – 16,018 Due from other banks 1,398 2,424 – – – 3,822 Interbank loans receivable and SPURA – 3,306 – 24 – 3,330 Financial assets at FVPL 48 – – – – 48 AFS investments – − 171 3,001 23,889 27,061 Loans and receivables 252 12,963 9,574 24,121 20,540 67,450 Other assets – 8 11 30 2 51 18,573 19,483 9,756 27,176 44,431 119,419 Financial Liabilities Deposit liabilities 25,593 50,273 7,805 8,582 5 92,258 Manager’s checks 724 – – – – 724 Accrued expenses 12 387 – – 399 Other liabilities 1,211 – – – – 1,211 27,528 50,285 8,192 8,582 5 94,592 Commitments 821 – – – – 821 28,349 50,285 8,192 8,582 5 95,413 (P=9,776) (P=30,802) P=1,564 P=18,594 P=44,426 P=24,006

Parent Company 2017 Up to Over 3 up Over 1 to On demand 3 months to 12 months 5 Years Over 5 years Total Financial Assets Cash and other cash items P=1,597 P=– P=– P=– P=– P=1,597 Due from BSP 15,091 530 – – – 15,621 Due from other banks 1,327 2,424 – – – 3,751 Interbank loans receivable and SPURA – 2,848 − 24 – 2,872 Financial assets at FVPL 48 – – – – 48 AFS investments – − 171 3,001 23,707 26,879 Loans and receivables – 12,922 9,427 23,084 20,460 65,893 Other assets – 8 11 29 2 50 18,063 18,732 9,609 26,138 44,169 116,711 Financial Liabilities Deposit liabilities 24,463 49,667 7,763 8,563 5 90,461 Manager’s checks 724 – – – – 724 Accrued expenses – − 387 – – 387 Other liabilities 1,197 – – – – 1,197 26,384 49,667 8,150 8,563 5 92,769 Commitments 821 – – – – 821 27,205 49,667 8,150 8,563 5 93,590 (P=9,142) (P=30,935) P=1,459 P=17,575 P=44,164 P=23,121

116 *SGVFS028612* Consolidated 2016 Up to Over 3 up Over 1 to On demand 3 months to 12 months 5 Years Over 5 years Total Financial Assets Cash and other cash items P=1,684 P=– P=– P=– P=– P=1,684 Due from BSP 11,016 2,401 – – – 13,417 Due from other banks 1,865 1,033 1,195 – – 4,093 Interbank loans receivable and SPURA – 582 75 27 – 684 Financial assets at FVPL 3 – – – – 3 AFS investments – 127 297 2,874 10,747 14,045 HTM investments – 276 99 2,468 1,859 4,702 Loans and receivables 858 9,250 6,247 12,295 11,209 39,859 Other assets 1 – 23 37 1 62 15,427 13,669 7,936 17,701 23,816 78,549 Financial Liabilities Deposit liabilities 30,257 24,803 7,414 4,530 – 67,004 Manager’s checks 404 – – – – 404 Redeemable preferred shares 31 – – – – 31 Accrued expenses – 418 – – – 418 Other liabilities 1,377 – – – – 1,377 32,069 25,221 7,414 4,530 – 69,234 Commitments 501 – – – – 501 32,570 25,221 7,414 4,530 − 69,735 (P=17,143) (P=11,552) P=522 P=13,171 P=23,816 P=8,814

Parent Company 2016 Up to Over 3 up Over 1 to On demand 3 months to 12 months 5 Years Over 5 years Total Financial Assets Cash and other cash items P=1,654 P=– P=– P=– P=– P=1,654 Due from BSP 10,872 1,851 – – – 12,723 Due from other banks 1,770 1,032 1,195 – – 3,997 Interbank loans receivable and SPURA – 493 75 27 – 595 Financial assets at FVPL 3 – – – – 3 AFS investments 127 297 2,874 10,747 14,045 HTM investment – 261 99 2,468 1,603 4,431 Loans and receivables 509 9,187 6,113 11,305 11,085 38,199 Other assets – − 23 37 − 60 14,808 12,951 7,802 16,711 23,435 75,707 Financial Liabilities Deposit liabilities 29,163 24,576 7,383 4,107 – 65,229 Manager’s checks 404 – – – – 404 Accrued expenses – 412 – – – 412 Other liabilities 1,367 – – – – 1,367 30,934 24,988 7,383 4,107 – 67,412 Commitments 501 – – – – 501 31,435 24,988 7,383 4,107 – 67,913 (P=16,627) (P=12,037) P=419 P=12,604 P=23,435 P=7,794

117 *SGVFS028612* Market Risk Market risk may be defined as the possibility of loss due to adverse movements in market factors such as rates and prices. Market risk is present in both trading and non-trading activities. These are the risk to earnings or capital arising from changes in the value of traded portfolios of financial instruments. The risk arises from market-making, dealing and position-taking in quoted debt securities and foreign exchange.

The Parent Company observes market risk limits, which are approved by the BOD and reviewed at least annually. Limits are set in such a way as to ensure that risks taken are based on the Parent Company’s existing capital adequacy framework, and corresponding monitoring reports are prepared regularly by an independent risk management unit.

When limits are breached, approval is sought from successive levels of authority depending on the amount of the excess. Limit breaches are periodically presented to the BOD.

Value-at-Risk (VaR) is computed to estimate potential losses arising from market movements. The Parent Company calculates and monitors VaR and profit or loss on a daily basis.

VaR objectives and methodology VaR is used by the Parent Company to measure market risk exposure from its trading and investment activities. VaR is an estimate of the maximum decline in value on a given position over a specified holding period in a normal market environment, with a given probability of occurrence. The Parent Company uses the historical simulation method in estimating VaR. The historical simulation method is a non-parametric approach to VaR calculation, in which asset returns are not subject to any functional distribution assumption. VaR is estimated directly from historical data without deriving parameters or making assumptions about the entire data distribution.

In employing the historical simulation method, the Parent Company assumes a 500 historical data (approximately 2 years). The Parent Company updates its dataset on a daily basis. Per the Parent Company policy, VaR is based on a 1-day holding period and a confidence level of 99%.

VaR methodology limitations and assumptions Discussed below are the limitations and assumptions applied by the Parent Company on its VaR methodology: a. VaR is a statistical estimate; thus, it does not give the precise amount of loss the Parent Company may incur in the future; b. VaR is not designed to give the probability of bank failure, but only attempts to quantify losses that may arise from a Parent Company’s exposure to market risk; c. Since VaR is computed from end-of-day positions and market factors, VaR does not capture intraday market risk. d. VaR systems depend on historical data. It attempts to forecast likely future losses using past data. As such, this assumes that past relationships will continue to hold in the future. Therefore, market shifts (i.e., an unexpected collapse of the market) will not be captured and may inflict losses larger than VaR; and e. The limitation relating to the pattern of historical returns being indicative of future returns is addressed by supplementing VaR with daily stress testing reported to the RMC, ALCO and the concerned risk-takers.

VaR back testing is the process by which financial institutions periodically compare ex-post profit or loss with the ex-ante VaR figures to gauge the robustness of the VaR model. The Parent Company performs quarterly back testing.

118 *SGVFS028612* The Parent Company’s VaR figures are as follows (in millions):

2017 Average Daily Highest Lowest December 31 Local interest rates P=2.5082 P=8.8925 P=0.0165 P=0.5591 Foreign interest rate − − − −

January – August 2016 Average Daily Highest Lowest August 17 Local interest rates P=3.0005 P=20.6307 P=0.1707 P=2.5533 Foreign interest rate − − − −

August – December 2016* Average Daily Highest Lowest December 31 Local interest rates P=4.2745 P=7.8317 P=0.0222 P=0.0225 Foreign interest rate 0.0002 0.0158 − − *based on new VaR assumptions

Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.

The sensitivity analysis below shows the impact of movement in interest rates on AFS investments of the Parent Company as of December 31, 2017 and 2016 (in millions).

Net Carrying +100 bps parallel shift -100 bps parallel shift December 31, 2017 Value in yield curve in yield curve Peso Denominated AFS P=13,963.40 (P=805.08) P=819.90 Dollar Denominated AFS (in PHP) 4,845.44 (479.48) 729.08

Net Carrying +100 bps parallel shift -100 bps parallel shift December 31, 2016 Value in yield curve in yield curve Peso Denominated AFS P=7,472.29 (=P420.19) P=501.76 Dollar Denominated AFS (in PHP) 3,944.17 (334.54) 389.82

The effects of the movement in interest rates on AFS investments are recorded under ‘other comprehensive income’.

The Parent Company’s ALCO surveys the interest rate environment, adjusts the interest rates for the Parent Company’s loans and deposits, assesses investment opportunities and reviews the structure of assets and liabilities. The Parent Company uses Earnings-at-Risk (EaR) as a tool for measuring and managing interest rate risk in the banking book.

Equity price risk Equity price risk is the risk that the fair values of the equities will decrease as a result of changes in the levels of equity indices and the value of the individual stocks. As of December 31, 2017 and 2016, the Group’s AFS investments amounted to P=203.78 million and P=329.38 million, respectively, while the Parent Company’s AFS investments amounted to P=233.95 million and =359.58P million. Management assessed that the equity price risk on these equity securities to be insignificant.

119 *SGVFS028612* Earnings-at-Risk objectives and methodology EAR is a statistical measure of the likely impact of changes in interest rates to the Bank’s net interest income (NII). To do this, repricing gaps (difference between interest rate-sensitive assets and liabilities) are classified according to time to repricing and multiplied with applicable historical interest rate volatility, although available contractual repricing dates are generally used for putting instruments into time bands, contractual maturity dates (e.g., for fixed rate instruments) or expected liquidation periods often based on historical data are used alternatively. The repricing gap per time band is computed by getting the difference between the inflows and outflows within the time band. A positive repricing gap implies that the Parent Company’s NII could decline if interest rates decrease upon repricing. A negative repricing gap implies that the Parent Company’s NII could decline if interest rates increase upon repricing. Although such gaps are a normal part of the business, a significant change may bring significant interest rate risk.

To help control interest rate risk arising from repricing gaps, maximum repricing gap and EaR/NII targets are set for time bands up to one year. EaR is prepared and reported to the RMC monthly.

The Parent Company’s EaR figures are as follows (in millions):

2017 Average Highest Lowest December 31 Instruments sensitive to local interest rates P=162.86 P=287.07 P=116.87 P=287.07 Instruments sensitive to foreign interest rates $0.13 $0.21 $0.08 $0.11

2016 Average Highest Lowest December 31 Instruments sensitive to local interest rates P=71.65 P=154.18 P=1.08 P=121.35 Instruments sensitive to foreign interest rates $0.04 $0.09 $0.01 $0.09

Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The BOD has set limits on positions by currency. In accordance with the Parent Company’s policy, positions are monitored on a daily basis and are used to ensure positions are maintained within established limits.

Statement of December 31, 2017 Income +10% USD appreciation USD P=81,434,122 Other Foreign Currencies* (26,247,025) -10% USD depreciation USD (81,434,122) Other Foreign Currencies* 26,247,025

Statement of December 31, 2016 Income +10% USD appreciation USD (P=16,577,997) Other Foreign Currencies** 20,666,562 -10% USD depreciation USD 16,577,997 Other Foreign Currencies** (20,666,562)

*significant positions held in EUR, GBP and AUD **significant positions held in CAD and AUD

120 *SGVFS028612* 5. Fair Value Measurement

The methods and assumptions used by the Group in estimating the Group’s assets and liabilities are:

Cash and other cash items, due from BSP, due from other banks, interbank loans receivable/securities purchased under repurchase agreements, accounts receivable and accrued interest receivable Carrying value approximates fair value given the short-term nature of these financial assets and insignificant risk of changes in value.

Trading and investment securities Fair values of debt securities (financial assets at FVPL, AFS and HTM investments) and equity investments are generally based on quoted market prices. If the fair value of financial assets cannot be derived from active markets, these are determined using internal valuation techniques using generally accepted market valuation models using inputs from observable markets subject to a degree of judgment.

For equity investments that are not quoted, the investments are carried at cost less allowance for impairment losses due to the unpredictable nature of future cash flows and the lack of suitable methods of arriving at a reliable fair value.

Derivative instruments Fair values of quoted warrants are based on quoted market prices. Other derivative products are valued using valuation techniques using market observable inputs including foreign exchange rates and interest rate curves prevailing at the statements of financial position date. For interest rate swaps, cross-currency swaps and foreign exchange contracts, discounted cash flow model is applied. This valuation model discounts each cash flow of the derivatives at a rate that is dependent on the tenor of the cash flow.

Receivables from customers Fair values are estimated using the discounted cash flow methodology, using the Group’s current incremental lending rates for similar types of receivables at current market rates ranging from 9.60% to 30.00%. Where the instruments reprice on a short-term basis or have a relatively short maturity, the carrying amounts approximate fair values.

Other receivables - Accounts receivable and accrued interest receivable Carrying amounts approximate fair values given their short-term nature.

Investment properties and repossessed chattels Fair value of investment properties and repossessed chattels are based on market data (or direct sales comparison) approach. This approach relies on the comparison of recent sale transactions or offerings of similar properties which have occurred and/or offered with close proximity to the subject property.

The fair values of the Group’s investment properties and repossessed chattels have been determined by appraisers, including independent external appraisers, in the basis of the recent sales of similar properties in the same areas as the investment properties and taking into account the economic conditions prevailing at the time of the valuations are made.

The Group has determined that the highest and best use of the property used for the land and building is its current use.

121 *SGVFS028612* Refundable deposits Fair values are estimated using the discounted cash flow methodology, using the average market price for similar types of receivables with maturities consistent to the receivable being valued. Where the instruments reprice on a short-term basis or have a relatively short maturity, the carrying amounts approximate fair values.

Time deposits Fair values are estimated using the discounted cash flow methodology using the Group’s current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued.

Long-term negotiable certificates of deposit (LTNCD) Fair values of LTNCD are estimated using quoted market rates for the instrument.

Other financial liabilities Carrying amounts approximate fair values due to either the demand nature or the relatively short-term maturities of these liabilities.

The following tables show the Group’s assets and liabilities carried at fair value and those whose fair value are required to be disclosed, analyzed among those whose fair value is based on: ∂ Quoted market prices in active markets for identical assets or liabilities (Level 1); ∂ Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and ∂ Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

Consolidated 2017 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Assets Measured at Fair Value Financial Assets Financial assets at FVPL P=48,134,331 P=− P=48,134,331 P=− P=48,134,331 AFS investments: Government securities 12,502,308,355 − 12,502,308,355 − 12,502,308,355 Private bonds 6,488,938,136 − 6,488,938,136 − 6,488,938,136 Quoted equity securities 179,900,000 179,900,000 − − 179,900,000 P=19,219,280,822 P=179,900,000 P=19,039,380,822 P=− P=19,219,280,822 Assets for which Fair Values are Disclosed Financial Assets Interbank loans receivable and SPURA P=3,327,394,739 P=− P=− P=3,327,489,092 P=3,327,489,092 AFS - unquoted equity securities 23,878,073 − − 23,878,073 23,878,073 Loans and receivables: Receivables from customers: Commercial 40,412,923,442 − − 42,771,323,585 42,771,323,585 Real estate 9,262,200,856 − − 11,506,707,704 11,506,707,704 Consumption 6,448,382,095 − − 7,642,133,060 7,642,133,060 Domestic bills purchased 498,529,953 − − 498,529,953 498,529,953 Other receivables: Accrued interest receivables 589,739,369 − − 589,739,369 589,739,369 Accounts receivable 399,368,988 − − 399,368,988 399,368,988 Sales contract receivable 33,526,920 − − 35,497,942 35,497,942 Lease receivable 9,101,014 − − 9,471,710 9,471,710 Refundable deposits 50,104,352 − − 50,343,999 50,343,999 Non-Financial Assets Investment properties 284,512,646 − − 395,820,309 395,820,309 61,339,662,447 − − 67,250,303,784 67,250,303,784

(Forward)

122 *SGVFS028612* Consolidated 2017 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Financial Liabilities Derivative liabilities P=5,904,377 P=− P=5,904,377 P=− P=5,904,377 Deposit liabilities: Demand 13,261,822,846 − − 13,261,822,846 13,261,822,846 Savings 59,914,046,564 − − 59,914,046,564 59,914,046,564 Time 12,651,477,858 − − 12,672,862,767 12,672,862,767 Long-term negotiable certificates 4,152,240,531 − 4,153,301,957 − 4,153,301,957 P=89,985,492,176 P=− P=4,159,206,334 P=85,848,732,177 P=90,007,938,511

Parent Company 2017 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Assets Measured at Fair Value Financial Assets Financial assets at FVPL AFS investments: P=48,134,331 P=− P=48,134,331 P=− P=48,134,331 Government securities 12,364,047,705 − 12,364,047,705 − 12,364,047,705 Private bonds 6,444,790,078 − 6,444,790,078 − 6,444,790,078 Quoted equity securities 179,900,000 179,900,000 − − 179,900,000 P=19,036,872,114 P=179,900,000 P=18,856,972,114 P=− P=19,036,872,114 Assets for which Fair Values are Disclosed Financial Assets Interbank loans receivable and SPURA P=2,868,924,517 P=− P=− P=2,869,018,870 P=2,869,018,870 AFS - unquoted debt securities 54,078,073 − − 54,078,073 54,078,073 Loans and receivables: Receivables from customers: Commercial 40,201,779,860 − − 42,515,343,865 42,515,343,865 Real estate 9,257,811,185 − − 11,497,612,673 11,497,612,673 Consumption 5,729,995,371 − − 6,580,135,197 6,580,135,197 Domestic bills purchased 498,529,953 − − 498,529,953 498,529,953 Other receivables: Accrued interest receivable 577,182,673 − − 577,182,673 577,182,673 Accounts receivable 390,497,519 − − 390,497,519 390,497,519 Sales contract receivable 3,137,952 − − 3,629,349 3,629,349 Refundable deposits 49,101,474 − − 49,101,474 49,101,474 Non-financial assets Investment properties 151,460,150 − − 210,051,729 210,051,729 P=59,782,498,727 P=− P=− P=65,518,810,724 P=65,518,810,724 Liabilities for which Fair Values are Disclosed Financial Liabilities Derivative liabilities P=5,904,377 P=− P=5,904,377 P=− P=5,904,377 Deposit liabilities: Demand 13,114,934,287 − − 13,114,934,287 13,114,934,287 Savings 58,697,118,467 − − 58,697,118,467 58,697,118,467 Time 12,218,723,433 − − 12,238,825,547 12,238,825,547 Long-term negotiable certificates 4,152,240,531 − 4,153,301,957 − 4,153,301,957 P=88,188,921,095 P=− P=4,159,206,334 P=84,050,878,301 P=88,210,084,635

123 *SGVFS028612* Consolidated 2016 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Assets Measured at Fair Value Financial Assets Financial assets at FVPL P=2,555,185 P=2,555,185 P=− P=− P=2,555,185 AFS investments: Government securities 8,192,453,343 − 8,192,453,343 − 8,192,453,343 Private bonds 3,222,098,803 − 3,222,098,803 − 3,222,098,803 Quoted equity securities 305,500,000 305,772,373 − − 305,772,373 P=11,722,607,331 P=308,327,558 P=11,414,552,146 P=− P=11,722,879,704 Assets for which Fair Values are Disclosed Financial Assets Interbank loans receivable and SPURA P=677,831,467 P=− P=− P=691,987,780 P=691,987,780 HTM investment 3,549,900,604 − 3,519,092,648 − 3,519,092,648 AFS - unquoted equity securities 23,878,073 − − 23,878,073 23,878,073 Loans and receivables: Receivables from customers: Commercial 27,331,833,356 − − 29,920,068,814 29,920,068,814 Real estate 5,749,265,920 − − 6,177,801,009 6,177,801,009 Consumption 4,947,385,457 − − 5,726,255,974 5,726,255,974 Domistic bills purchased 118,938,689 − − 118,938,689 118,938,689 Other receivables: Accrued interest receivables 449,277,836 − − 449,277,836 449,277,836 Accounts receivable 246,343,633 − − 246,343,633 246,343,633 Sales contract receivable 45,422,449 − − 28,609,405 28,609,405 Lease receivable 8,614,547 − − 9,030,296 9,030,296 Refundable deposits 57,201,471 − − 58,926,429 58,926,429 Non-Financial Assets − Investment properties 285,433,340 − − 254,920,603 254,920,603 P=43,491,326,842 P=− P=3,519,092,648 P=43,706,038,541 P=47,225,131,189 Liabilities for which Fair Values are Disclosed Financial Liabilities Derivative liabilities P=7,447,751 P=− P=7,447,751 P=− P=7,447,751 Deposit liabilities: Demand 12,428,636,410 − − 12,428,636,410 12,428,636,410 Savings 37,970,501,792 − − 37,970,501,792 37,970,501,792 Time 12,895,961,824 − − 12,927,516,996 12,927,516,996 P=63,302,547,777 P=− P=7,447,751 P=63,326,655,198 P=63,334,102,949

Parent Company 2016 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Assets Measured at Fair Value Financial Assets Financial assets at FVPL P=2,555,185 P=2,555,185 P=− P=− P=2,555,185 AFS investments: Government securities 8,192,453,343 − 8,192,453,343 − 8,192,453,343 Private bonds 3,222,098,803 − 3,222,098,803 − 3,222,098,803 Quoted equity securities 305,500,000 305,772,373 − − 305,772,373 P=11,722,607,331 P=308,327,558 P=11,414,552,146 P=− P=11,722,879,704 Assets for which Fair Values are Disclosed Financial Assets Interbank loans receivable and SPURA P=589,077,515 P=− P=− P=603,233,828 P=156,313 HTM investment 3,334,528,051 − 3,314,412,732 − 3,314,412,732 AFS – unquoted debt securities 54,078,073 − − 54,078,073 54,078,073 Loans and receivables: Receivables from customers: Commercial 27,050,142,616 − − 29,627,729,761 29,627,729,761 Real estate 5,744,776,460 − − 6,167,115,367 6,167,115,367 Consumption 4,368,578,085 − − 4,734,804,642 4,734,804,642 Domestic bills purchased 118,938,689 − − 118,938,689 118,938,689 Other receivables: Accrued interest receivable 423,384,811 − − 423,384,811 423,384,811 Accounts receivable 229,641,157 − − 229,641,157 229,641,157 Sales contract receivable 33,887,590 − − 17,778,187 17,778,187 Refundable deposits 55,721,032 − − 57,537,175 57,537,175 Non-financial assets Investment properties 129,916,432 − − 149,368,625 149,368,625 P=42,132,670,511 P=− P=3,314,412,732 P=42,213,610,315 P=45,498,023,047 (Forward) 124 *SGVFS028612* Parent Company 2016 Carrying Value Level 1 Level 2 Level 3 Total Fair Value Liabilities for which Fair Values are Disclosed Financial Liabilities Derivative liabilities P=7,447,751 P=− P=7,447,751 P=− P=7,447,751 Deposit liabilities: Demand 12,286,356,800 − − 12,286,356,800 12,286,356,800 Savings 36,800,315,109 − − 36,800,315,109 36,800,315,109 Time 12,456,975,222 − − 12,478,437,971 12,478,437,971 P=61,551,094,882 P=− P=7,447,751 P=61,565,109,880 P=61,572,557,631

In 2017 and 2016, there were no transfers between Level 1 and Level 2 fair value measurements and there were no transfers into and out of the Level 3 category.

Description of significant unobservable inputs to valuation:

Consolidated Accounts Valuation Technique Significant Unobservable Inputs Loans and receivables Discounted cash flow method 4.00% - 19.67% risk premium rate Investment properties Land Market data approach Price per square meter, size, shape, location, time element and discount Building Cost approach Cost per square meter, size, shape, location, condition and time element Refundable deposits Discounted cash flow method 0.25% - 11.00% risk premium rate Time deposits Discounted cash flow method 0.25% - 3.90% risk premium rate

Parent Company Accounts Valuation Technique Significant Unobservable Inputs Loans and receivables Discounted cash flow method 4.00% - 5.00% risk premium rate Investment properties Land Market data approach Price per square meter, size, shape, location, time element and discount Building Cost approach Cost per square meter, size, shape, location, condition and time element Refundable deposits Discounted cash flow method 0.25% - 3.00% risk premium rate Time deposits Discounted cash flow method 0.25% - 3.00% risk premium rate

Significant increases (decreases) in price per square meter and size of investment properties would result in a significantly higher (lower) fair value of the properties. Significant increases (decreases) in discount would result in a significantly lower (higher) fair value of the properties.

Significant Unobservable Inputs

Size Size of lot in terms of area. Evaluate if the lot size of property or comparable conforms to the average cut of the lots in the area and estimate the impact of the lot size differences on land value. Shape Particular form or configuration of the lot. A highly irregular shape limits the usable area whereas an ideal lot configuration maximizes the usable area of the lot which is associated in designing an improvement which conforms with the highest and best use of the property.

125 *SGVFS028612* Location Location of comparative properties whether on a main road, or secondary road. Road width could also be a consideration if data is available. As a rule, properties located along a main road are superior to properties located along a secondary road. Time element An adjustment for market conditions is made if general property values have appreciated or depreciated since the transaction dates due to inflation or deflation or a change in investor’s perceptions of the market over time. In which case, the current data is superior to historic data. Discount Generally, asking prices in ads posted for sale are negotiable. Discount is the amount the seller or developer is willing to deduct from the posted selling price if the transaction will be in cash or equivalent.

6. Interbank Loans Receivable and Securities Purchased Under Resale Agreement

This account consists of:

Consolidated Parent Company 2017 2016 2017 2016 Interbank loans receivable P=423,750,000 P=96,000,000 P=423,750,000 P=96,000,000 SPURA 2,903,644,739 581,831,467 2,445,174,517 493,077,515 P=3,327,394,739 P=677,831,467 P=2,868,924,517 P=589,077,515

Interbank loans receivable of the Parent Company from a local savings bank has a remaining maturity of three (3) days to one (1) year and four (4) months in 2017 and one (1) to two (2) years in 2016. As of December 31, 2017, placement on SPURA with the BSP had a remaining maturity of three (3) days. The fair value of the related collateral of SPURA is disclosed in Note 5.

The interest income of the Group in 2017, 2016 and 2015 from from interbank loan receivable amounted to =45.56P million, =34.37P million and =28.48P million, respectively while interest income from SPURA amounted to =89.77P million =43.37P million and =10.37P million, respectively.

The interest income of Parent Company in 2017, 2016, and 2015 from interbank loan receivable amounted to =44.19P million, =34.37P million and =28.48P million, respectively while interest income from SPURA amounted to =86.67P million =39.41P million and =10.37P million, respectively.

7. Investment Securities

Financial Assets at FVPL This account consists of investments by the Parent Company in:

2017 2016 Derivatives assets P=32,870 P=1,322,995 Government securities 48,101,461 1,232,190 P=48,134,331 P=2,555,185

The nominal annual interest rates of peso-denominated government securities range from 3.25% to 7.25% in 2017, from 1.73% to 4.60% in 2016 and from 3.30% to 5.75% in 2015. The nominal annual interest rates of foreign currency-denominated government securities range from 3.70% to 3.95% in 2017, from 2.89% to 4.87% in 2016 and from 2.48% to 4.86% in 2015.

126 *SGVFS028612* The table below shows the fair values of derivative financial instruments entered into by the Parent Company, recorded as derivative assets/liabilities, together with the notional amounts. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding as of December 31, 2017 and 2016 and are not indicative of either market risk or credit risk.

2017 Average Liabilities Forward Notional Assets (Note 17) Rate Amount Maturity Date Freestanding Derivatives Currency Swaps Bought: USD/PHP P=32,870 P=241,907 49.9580 $10,000,000 January 4 – 5, 2018 Sold: EUR/USD − 3,640,391 1.1875 $4,453,125 January 10, 2018 GBP/USD − 2,022,079 1.3400 $2,680,000 January 10, 2018 P=32,870 P=5,904,377

2016 Average Liabilities Forward Notional Assets (Note 17) Rate Amount Maturity Date Freestanding Derivatives Currency Swaps Bought: USD/PHP P=− P=1,319,176 49.8815 $25,000,000 January 3-12, 2017 EUR/USD 1,267,485 − 1.0453 €1,000,000 January 10, 2017 Sold: January 3 – March 27, PHP/USD − 6,128,575 49.8035 $14,000,000 2017 USD/EUR 55,510 − 49.6269 €30,000,000 January 10, 2017 P=1,322,995 P=7,447,751

The Bank’s subsidiary has nil financial assets at FVPL as of December 31, 2017 and 2016.

AFS Investments This account consists of investments in:

Consolidated Parent Company 2017 2016 2017 2016 Government securities P=12,502,308,355 P=8,192,453,343 P=12,364,047,705 P=8,192,453,343 Private bonds 6,488,938,136 3,222,098,803 6,444,790,078 3,222,098,803 Quoted equity securities 179,900,000 305,500,000 179,900,000 305,500,000 Unquoted equity securities 23,878,073 23,878,073 54,078,073 54,078,073 P=19,195,024,564 P=11,743,930,219 P=19,042,815,856 P=11,774,130,219

The range of the Group’s effective interest rate on government securities are as follows:

2017 2016 2015 Peso-denominated securities 1.38%-5.19% 2.57%-4.71% 3.11%-8.14% Foreign currency-denominated securities 2.75%-5.18% 2.80%-4.86% 2.75%-4.44%

The range of the Group’s effective interest rate on the private bonds are as follows:

2017 2016 2015 Peso-denominated securities 3.90%-6.63% 3.89%-5.27% 4.41%-6.88% Foreign currency-denominated securities 3.86%-5.90% 3.56%-7.10% 3.74%-6.50%

127 *SGVFS028612* As of December 31, 2017 and 2016, the quoted equity securities of the Group consist of shares of stocks in a private corporation.

Investments in unquoted equity securities include investment in shares of stock of Philippine Clearing House Corporation (PCHC), BancNet, and LGU Gaurantee Corporation. These investments are required to be held by the Parent Company as part of its operations. The Parent Company does not have any plans to sell these shares in the future. These securities are carried at cost due to the unpredictable nature of future cash flows from these securities and the lack of suitable valuation for arriving at a reliable fair value estimate.

In 2017, 2016 and 2015, dividend income from equity securities under ‘AFS investments’ presented under ‘Miscellaneous income - others’ of the Group amounted to P=13.40 million, P=6.92 million and P=0.25 million, respectively (see Note 22).

As of December 31, 2017 and 2016, the unquoted equity securities of the Parent Company include redeemable preferred shares of LSB amounting to P=30.20 million equivalent to 30,200 shares.

As of December 31, 2017, the AFS investments of the Group and Parent Company also include securities previously reclassified from HTM carried at fair value of P=2.53 billion and =2.35P billion, respectively.

Movements in net unrealized losses of the Group and the Parent Company included in the carrying value of ‘AFS investments’ follow:

2017 2016 Balance at beginning of year (P=838,255,143) (=P562,948,094) Changes in fair value (40,781,905) (128,480,203) Realized gains taken to profit or loss (147,619,819) (146,826,846) Change in unrealized losses on AFS investments (188,401,724) (275,307,049) Balance at end of year (P=1,026,656,867) (=P838,255,143)

HTM Investments As of December 31, 2017 and 2016, the Group’s HTM investments amounted to nil and P=3.55 billion, respectively, while the Parent Company’s HTM investments amounted to nil and P=3.33 billion.

On January 24, 2017, the Parent Company sold a significant portion of its HTM investment with a carrying value of P=300.00 million for a total consideration of =308.93P million. Total trading gains on disposal of these HTM investments amounted to P=8.93 million, included in ‘Trading and securities gain - net’. Accordingly, the remaining HTM investments portfolio of the Group and the Parent Company with carrying values amounting to P=3.24 billion and P=3.04 billion, respectively was reclassified to AFS investments.

Interest income on investment securities of the Group and the Parent Company consists of:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 AFS investments P=695,049,519 P=353,649,434 P=320,124,799 P=688,508,165 P=353,649,434 P=320,124,799 HTM investments 23,747,163 170,428,187 109,230,854 23,747,163 164,815,595 109,230,854 Financial assets at FVPL 3,164,288 3,306,426 42,346,156 3,164,288 3,306,426 42,346,156 P=721,960,970 P=527,384,047 P=471,701,809 P=715,419,616 P=521,771,455 P=471,701,809

128 *SGVFS028612* ‘Trading and securities gains - net’ of the Group and Parent Company consist of:

2017 2016 2015 Net realized gains on AFS securities taken to profit or loss P=147,619,819 P=146,826,846 P=57,821,174 Realized gains on derivatives 21,215,876 18,434,271 − Net realized gains (losses) on sale of financial assets at FVPL 14,224,671 (316,138) 28,981,911 Gain on disposal of HTM investments 8,928,275 − − Unrealized mark-to-market losses on financial assets at FVPL (1,223,824) (125,955) (9,562,658) Net unrealized gains on derivatives (5,871,507) (6,124,756) − P=184,893,310 P=158,694,268 P=77,240,427

8. Loans and Receivables

This account consists of:

Consolidated Parent Company 2017 2016 2017 2016 Receivables from customers: Commercial (Note 24) P=41,043,905,533 P=27,820,217,445 P=40,855,411,927 P=27,503,181,551 Real estate 9,430,388,922 5,763,511,983 9,420,578,552 5,752,176,923 Consumption 6,847,265,412 5,217,952,917 5,959,020,568 4,564,423,973 Domestic bills purchased (Notes 17 and 24) 498,529,953 139,337,392 498,529,953 139,337,392 57,820,089,820 38,941,019,737 56,733,541,000 37,959,119,839 Less: unearned interest and discount 235,511,770 30,998,551 170,640,420 8,332,311 57,584,578,050 38,910,021,186 56,562,900,580 37,950,787,528 Other receivables: Accrued interest receivable 662,887,558 493,726,051 631,881,295 454,754,720 Accounts receivable 465,764,548 348,198,599 450,355,427 323,793,278 Sales contract receivable 34,463,931 49,541,368 3,598,817 37,298,848 Lease receivables (Note 21) 9,101,014 8,614,547 − − 58,756,795,101 39,810,101,751 57,648,736,119 38,766,634,374 Less: Allowance for credit losses (Note 14) 1,103,022,464 913,019,864 989,801,606 797,284,966 P=57,653,772,637 P=38,897,081,887 P=56,658,934,513 P=37,969,349,408

On May 26, 2017, the Parent Company entered into a purchase of receivables agreement with Robinsons Land Coporation (RLC) whereby, the Parent Company will purchase, on a without recourse basis, certain finance lease receivables of RLC. In 2017, total lease receivables purchased by the Parent Company amounted to P=1.09 billion. The Parent Company’s acquisition cost of the lease receivables approximate the fair value at the acquisition date. As of December 31, 2017, the carrying amount of these receivables amounting to P=832.69 million is included under ‘Real estate’ loans of the Parent Company.

The range of effective interest rates of the Group’s sales contract receivables are as follows:

Year Interest Rate 2017 6.50% to 16.73% 2016 6.25% to 18.00% 2015 6.50% to 18.00%

129 *SGVFS028612* Interest income on loans and receivables consists of:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Receivables from customers: Commercial P=1,692,098,388 P=1,076,902,794 P=956,944,794 P=1,646,008,628 P=1,040,826,798 P=931,758,029 Consumption 1,016,984,816 921,025,063 802,149,938 870,261,156 785,282,361 663,407,539 Real estate 480,287,737 314,683,992 278,990,191 479,910,163 314,097,616 274,442,403 Domestic bills purchased 304,453 455,965 482,050 304,453 455,965 482,050 Others 2,493,750 15,093,007 7,624,970 203,301 10,100,772 5,142,882 P=3,192,169,144 P=2,328,160,821 P=2,046,191,943 P=2,996,687,701 P=2,150,763,512 P=1,875,232,903

Others consist of sales contract receivables and lease receivables.

Receivables from customers earns annual effective interest rates, as follow:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Effective interest rate 2.00-52.10 0.20-60.95 0.12-60.95 2.00-52.10 2.00-60.95 2.00-60.95

BSP Reporting As of December 31, 2017 and 2016, information relating to secured loans by collateral type and unsecured receivables from customers follows:

Consolidated 2017 2016 Amount % Amount % Secured by: Real estate P=12,153,516,855 21.02 P=7,371,818,158 18.93 Chattel 5,062,075,946 8.75 1,913,195,794 4.91 Deposit hold-outs 3,652,600,879 6.32 2,604,951,023 6.69 Others 7,906,023,999 13.67 3,620,650,848 9.30 28,774,217,679 49.77 15,510,615,823 39.83 Unsecured 29,045,872,141 50.23 23,430,403,914 60.17 P=57,820,089,820 100.00 P=38,941,019,737 100.00

Parent Company 2017 2016 Amount % Amount % Secured by: Real estate P=12,056,996,741 21.25 P=7,266,575,046 19.14 Deposit hold-outs 5,059,427,360 8.92 1,910,287,378 5.03 Chattel 3,637,617,064 6.41 2,590,747,470 6.83 Others 7,906,023,999 13.94 3,620,650,848 9.54 28,660,065,164 50.52 15,388,260,742 40.54 Unsecured 28,073,475,836 49.48 22,570,859,097 59.46 P=56,733,541,000 100.00 P=37,959,119,839 100.00

Others include jewelry, mortgage trust indenture, company guarantees, deed of assignments of receivables and deed of suretyships.

As of December 31, 2017, 2016 and 2015, 16.34%, 35.40% and 35.18%, respectively, of the Group’s total receivables from customers are subject to periodic interest repricing.

As of December 31, 2017, 2016 and 2015, 16.60%, 36.29% and 41.25%, respectively of the Parent Company’s total receivables from customers are subject to periodic interest repricing. 130 *SGVFS028612* As of December 31, 2017 and 2016, information on the concentration of credit as to industry follows (in millions):

Consolidated Parent Company 2017 2016 2017 2016 Amount % Amount % Amount % Amount % Real estate activities P=13,583 23.49 P=8,950 22.98 P=13,562 23.90 P=8,934 23.54 Wholesale and retail trade, repair of motor vehicles, motorcycles 9,336 16.15 7,866 20.20 9,226 16.26 7,759 20.44 Manufacturing 6,571 11.36 3,641 9.35 6,563 11.57 3,627 9.56 Loans to individuals for consumption purposes 5,234 9.05 4,437 11.39 5,234 9.23 3,853 10.15 Electricity, gas, steam and air conditioning supply 5,418 9.37 3,073 7.89 5,418 9.55 3,068 8.08 Transportation and storage 4,916 8.50 957 2.46 4,915 8.66 956 2.52 Financial and insurance activities 4,893 8.46 4,623 11.87 4,893 8.62 4,623 12.18 Arts, entertainment and recreation 2,000 3.46 1,000 2.57 2,000 3.53 1,000 2.63 Accommodation and food service activities 1,152 2.00 870 2.23 1,145 2.02 P=864 2.28 Agriculture, forestry and fishing 920 1.59 660 1.69 676 1.19 501 1.32 Information and communication 865 1.50 802 2.06 865 1.52 801 2.11 Construction 839 1.45 621 1.59 816 1.44 580 1.53 Administrative and support service activities 640 1.11 258 0.66 633 1.12 258 0.68 Water supply, sewerage, waste management and remediation services 492 0.85 789 2.03 492 0.87 788 2.08 Other service activities 961 1.66 394 1.01 296 0.52 347 0.90 P=57,820 100.00 P=38,941 100.00 P=56,734 100.00 P=37,959 100.00

Other service activities include public administration and defense, compulsory social security, education, human health, social work, professional, scientific, technical, mining and quarrying activities.

The BSP considers that concentration risk exists when the total loan exposure to a particular industry or economic sector exceeds 30.00% of the total loan portfolio.

Restructured receivables of the Parent Company as of December 31, 2017 and 2016 amounted to P=314.47 million and P=348.01 million, respectively.

Non-performing loans Under banking regulations, non-performing loans (NPLs) shall, as a general rule, refer to loans whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due in accordance with existing BSP rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly, semi-annual, or annual installments, in which case, the total outstanding balance thereof shall be considered non-performing. Under BSP Circular No. 772, which was issued on October 16, 2012, gross NPLs include NPLs that are covered with 100.00% allowance.

In the case of receivables that are payable in monthly installments, the total outstanding balance thereof shall be considered non-performing when three (3) or more installments are in arrears. In the case of receivables that are payable in daily, weekly, or semi-monthly installments, the total outstanding balance thereof shall be considered non-performing at the same time that they become past due in accordance with existing BSP regulations, i.e., the entire outstanding balance of the receivable shall be considered as past due when the total amount of arrearages reaches 10.00% of the total receivable balance. Restructured receivables which do not meet the requirements to be treated as performing receivables shall also be considered as NPLs.

131 *SGVFS028612* The Group classifies its loans and receivables as NPL in compliance with BSP regulations, or when, in the opinion of management, collection of interest or principal is doubtful. Loans and receivables are not reclassified as performing until interest and principal payments are brought current or the loans are restructured in accordance with existing BSP regulations and future payments appear assured.

As of December 31, 2017 and 2016, details of gross NPLs follow:

Consolidated Parent Company 2017 2016 2017 2016 Secured P=271,661,288 P=217,159,825 P=200,273,137 P=152,204,657 Unsecured 825,251,211 921,465,654 564,708,484 539,003,323 P=1,096,912,499 P=1,138,625,479 P=764,981,621 P=691,207,980

As of December 31, 2017 and 2016, net NPLs of the Group and of the Parent Company as reported to the BSP follow:

Consolidated Parent Company 2017 2016 2017 2016 Total NPLs P=1,096,912,499 P=1,138,625,479 P=764,981,621 P=691,207,980 Deductions as required by the BSP* 615,482,742 784,875,886 392,046,491 397,721,518 P=481,429,757 P=353,749,593 P=372,935,130 P=293,486,462 *Allowance for credit losses per BSP

Restructured receivables which do not meet the requirements to be treated as performing receivables shall also be considered as NPLs.

9. Investment in a Subsidiary

On July 25, 2012, the Parent Company’s BOD approved the acquisition of the 100.00% controlling interest (both common and preferred shares) in LSB. Further, it was resolved that the Parent Company would seek approval from the Monetary Board (MB) of the BSP for the acquisition and other incentives.

On August 15, 2012, the MB of the BSP issued its approval in principle of the Parent Company’s request to acquire LSB and of all the incentives requested by the Parent Company subject to the submission of the necessary requirements.

Beginning August 27, 2012, the Parent Company executed a share purchase agreement (SPA) with the LSB stockholders and made the related partial settlements therewith. The stock and transfer books of LSB will be updated upon the issuance of the certificate authorizing registration from the BIR. As of December 26, 2012, the Parent Company and majority of LSB stockholders had signed on the SPA.

On December 26, 2012, the MB of the BSP approved the SPA covering the Parent Company’s acquisition of the 100.00% common shares of LSB. The deeds of sale to implement the SPA were executed afterwards.

132 *SGVFS028612* In addition to the approval of the acquisition, the MB of the BSP approved the following merger incentives:

1. Grant of several branch licenses to the Parent Company in restricted areas and waiver of corresponding P=20.00 million special branch licensing fee for each restricted branch license, subject to the following conditions: (a) the establishment of the awarded branches in restricted areas shall be subject to compliance with all other applicable provisions on branch establishment prescribed under Section X151 of the Manual of Regulations for Banks (MORB); and (b) branches shall be opened within three (3) years from BSP final approval of the Parent Company’s acquisition of LSB.

2. Waiver of (a) the monetary penalties aggregating P=6.40 million as of November 30, 2012 for violation of laws assessed by BSP on LSB, except penalties accruing to other parties, e.g., Micro, Small and Medium Enterprises Development Council Fund. Such waiver shall not preclude BSP from pursuing watchlisting and imposition of non-monetary and administrative sanctions (e.g., fines, disqualifications, suspensions and/or removal from office) against the directors and officers of LSB in accordance with applicable banking laws and regulations, without prejudice to the filing of criminal cases against liable persons under Section 34, 35 and 36 of Republic Act No. 7653 (the New Central Bank Act); (b) the applicable restrictions/ceilings on transactions between the Parent Company and LSB, for a period of three months, with respect to the Parent Company’s liquidity support to LSB (through deposits to and/or purchase of receivables from LSB).

3. Staggered booking, up to five (5) years from final BSP approval of the Parent Company’s acquisition of LSB, of the =274.10P million required allowance for probable losses on LSB’s risk assets. The periodic amortization shall be charged against current operations, in accordance with the regulatory accounting guidelines for deferred loss recognition under Appendix 56a (to Subsection X394.10) of the MORB. The unamortized losses shall be deducted from qualifying capital for purposes of capital adequacy ratio computation and from computation of LSB’s unimpaired capital under Subsection X116.1 of the MORB.

As of December 31, 2017, LSB has recognized the full amount of the required allowance for probable losses on its risk assets.

4. Retention of the thrift branch license of LSB on its existing eleven (11) branches, for its operations as a wholly-owned subsidiary of the Parent Company to pursue microfinance and country-side banking.

5. Approval of the following interlocking positions:

a. concurrent assignment of the Parent Company’s Head of Legal Services as Corporate Secretary of LSB; b. secondment of the officers of the Parent Company to LSB to assume the position of President and Chief Compliance Officer subject to the condition that these officers shall (i) relinquish all their duties, responsibilities, and signing authorities in the Parent Company and (ii) receive compensation/salaries and other emoluments from LSB; and c. notation of the interlocking directorships and officership-directorships of the Parent Company.

Based on the foregoing events, the Parent Company acquired effective control and management of LSB as of December 26, 2012. Accordingly, in accordance with PFRS 3, Business Combinations, the Parent Company’s date of acquisition of LSB is December 26, 2012. However, for convenience purposes, the Group used December 31, 2012 as the cut-off in determining the fair value of the net 133 *SGVFS028612* assets of LSB. Therefore, only the fair values of the identifiable assets and liabilities of LSB as December 31, 2012 were consolidated and the profit and loss of LSB for the year ended December 31, 2012 were excluded from the Group’s consolidated financial statements as of December 31, 2012.

The acquisition resulted in recognition of goodwill amounting to P=244.33 million. There were no adjustments resulting from the final purchase price allocation from LSB. As of December 31, 2017 and 2016, goodwill amounted to P=244.33 million.

On August 22, 2012, the BOD of the Parent Company approved the infusion of cash equity to bring LSB’s capital adequacy ratio (CAR) to at least 10.00% amounting to P=620.00 million. In December 2012, the Parent Company infused the P=620.00 million to LSB as a deposit for future stock subscription.

On January 23, 2013, the BOD of LSB approved the conversion of deposit for future stock subscription amounting to P=174.04 million equivalent to 1.74 million shares at P=100.00 par value per share.

On June 22, 2015, LSB obtained approval of its application for increase in authorized capital stock from the BSP.

On September 28, 2015, LSB filed its application for the increase in its authorized capital stock with the SEC and paid for the related filing fees on January 11, 2016. On January 13, 2016, the SEC approved LSB’s application for the increase in its authorized capital stock. LSB converted the outstanding deposit for future stock subscription amounting to P=445.96 million equivalent to 4.46 million shares at =100.00P par value.

On April 27, 2016, the Parent Company infused additional capital to LSB amounting to =400.00P million equivalent to 4.00 million shares at =100.00P par value.

As of December 31, 2017 and 2016, the Parent Company‘s investment in LSB consists of:

December 31, December 31, 2017 2016 Cost Balance at beginning of year P=1,131,000,000 P=731,000,000 Capital infusion − 400,000,000 Balance at end of year 1,131,000,000 1,131,000,000 Accumulated equity in net income Balance at beginning of year 73,802,469 51,415,492 Share in net income of a subsidiary 28,183,574 22,386,977 Balance at end of year 101,986,043 73,802,469 Accumulated equity in OCI Balance at beginning of year 81,541 232,361 Unrealized loss on available-for-sale investments (18,055,001) − Remeasurement gain (loss) on retirement liability 700,592 (150,820) Balance at end of year (17,272,868) 81,541 P=1,215,713,175 P=1,204,884,010

134 *SGVFS028612* 10. Property and Equipment

The composition of and the movements in this account follow:

Consolidated 2017 Furniture, Transportation Leasehold Fixtures and Land Building Equipment Improvements Equipment Total Cost Balance at beginning of year P=14,703,332 P=55,097,696 P=163,750,082 P=608,767,376 P=741,661,739 P=1,583,980,225 Additions − 47,818 18,557,590 80,437,782 130,642,295 229,685,485 Disposals (8,518,932) (3,914,516) (8,471,506) (7,006,928) (94,435) (28,006,317) Reclassification (Notes 11 and 13) 29,420,923 24,664,772 5,327,157 (1,346,547) 74,582 58,140,887 Balance at end of year 35,605,323 75,895,770 179,163,323 680,851,683 872,284,181 1,843,800,280 Accumulated depreciation and amortization Balance at beginning of year − 25,314,191 101,491,857 357,842,858 584,388,362 1,069,037,268 Depreciation and amortization − 4,114,165 23,528,730 86,529,282 74,850,788 189,022,965 Disposals − (2,146,739) (4,159,695) (3,540,848) (93,568) (9,940,850) Reclassification (Notes 11 and 13) − (106,615) − (3,480,800) 76,266 (3,511,149) Balance at end of year − 27,175,002 120,860,892 437,350,492 659,221,848 1,244,608,234 Allowance for impairment losses (Note 14) Balance at beginning of year 1,912,400 − − − − 1,912,400 Provision − 4,434,696 − − 279,328 4,714,024 Reclassification (Notes 11 and 13) 5,830,127 139,715 − − − 5,969,842 Balance at end of year 7,742,527 4,574,411 − − 279,328 12,596,266 Net Book Value at End of the Year P=27,862,796 P=44,146,357 P=58,302,431 P=243,501,191 P=212,783,005 P=586,595,780

Parent Company 2017 Furniture, Transportation Leasehold Fixtures and Land Building Equipment Improvements Equipment Total Cost Balance at beginning of year P=− P=39,946,381 P=150,085,148 P=576,513,076 P=665,536,955 P=1,432,081,560 Additions − − 16,844,535 76,622,584 122,300,422 215,767,541 Disposals − − (8,471,506) − − (8,471,506) Reclassification (Notes 11 and 13) 23,590,796 17,763,464 5,230,665 − − 46,584,925 Balance at end of year 23,590,796 57,709,845 163,688,842 653,135,660 787,837,377 1,685,962,520 Accumulated depreciation and amortization Balance at beginning of year − 18,187,039 92,317,540 341,580,028 528,027,042 980,111,649 Depreciation and amortization − 2,486,026 22,050,870 80,213,832 64,191,194 168,941,922 Disposals − − (4,159,695) − − (4,159,695) Balance at end of year − 20,673,065 110,208,715 421,793,860 592,218,236 1,144,893,876 Allowance for impairment losses (Note 14) Balance at beginning of year − − − − − − Provision − − − − 279,328 279,328 Balance at end of year − − − − 279,328 279,328 Net Book Value at End of the Year P=23,590,796 P=37,036,780 P=53,480,127 P=231,341,800 P=195,339,813 P=540,789,316

135 *SGVFS028612* Consolidated 2016 Furniture, Transportation Leasehold Fixtures and Land Building Equipment Improvements Equipment Total Cost Balance at beginning of year P=14,703,332 P=55,097,696 P=144,927,502 P=475,604,173 P=683,357,742 P=1,373,690,445 Additions − − 17,745,866 133,163,203 58,303,997 209,213,066 Disposals − − (7,382,851) − − (7,382,851) Reclassification (Notes 11 and 13) − − 8,459,565 − − 8,459,565 Balance at end of year 14,703,332 55,097,696 163,750,082 608,767,376 741,661,739 1,583,980,225 Accumulated depreciation and amortization Balance at beginning of year − 24,457,866 84,381,680 283,658,119 510,665,880 903,163,545 Depreciation and amortization − 3,038,335 24,258,818 69,709,080 74,188,407 171,194,640 Disposals − − (5,320,917) − − (5,320,917) Reclassification (Notes 11 and 13) − (2,182,010) (1,827,724) 4,475,659 (465,925) − Balance at end of year − 25,314,191 101,491,857 357,842,858 584,388,362 1,069,037,268 Allowance for impairment losses (Note 14) Balance at beginning of year − − − − − − Provision 1,912,400 − − − − 1,912,400 Balance at end of year 1,912,400 − − − − 1,912,400 Net Book Value at End of the Year P=12,790,932 P=29,783,505 P=62,258,225 P=250,924,518 P=157,273,377 P=513,030,557

Parent Company 2016 Furniture, Transportation Leasehold Fixtures and Building Equipment Improvements Equipment Total Cost Balance at beginning of year P=39,946,381 P=132,503,291 P=450,866,491 P=619,457,578 P=1,242,773,741 Additions − 16,205,143 125,646,585 46,079,377 187,931,105 Disposals − (7,082,851) − − (7,082,851) Reclassification (Notes 11 and 13) − 8,459,565 − − 8,459,565 Balance at end of year 39,946,381 150,085,148 576,513,076 665,536,955 1,432,081,560 Accumulated depreciation and amortization Balance at beginning of year 16,589,183 75,531,022 273,909,308 462,194,708 828,224,221 Depreciation and amortization 1,597,856 21,932,433 67,670,720 65,832,334 157,033,343 Disposals − (5,145,915) − − (5,145,915) Balance at end of year 18,187,039 92,317,540 341,580,028 528,027,042 980,111,649 Net Book Value at End of the Year P=21,759,342 P=57,767,608 P=234,933,048 P=137,509,913 P=451,969,911

Gain on sale of property and equipment included in ‘Miscellaneous income’ amounted to P=16.48 million, P=3.86 million and P=0.68 million in 2017, 2016 and 2015, respectively, for the Group, and P=1.76 million, =3.82P million and P=0.68 million in 2017, 2016 and 2015, respectively, for the Parent Company (see Note 22). The details of depreciation and amortization follow:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Property and equipment P=189,022,965 P=171,194,640 P=153,249,560 P=168,941,922 P=157,033,343 P=138,944,836 Software costs (Note 13) 80,336,227 73,933,679 59,018,378 76,990,421 70,641,825 56,369,530 Repossessed chattels (Note 13) 40,901,818 45,975,711 37,958,112 40,784,202 45,936,432 37,943,224 Investment properties (Note 11) 15,875,764 10,984,617 6,749,378 13,009,489 9,419,569 4,432,873 P=326,136,774 P=302,088,647 P=256,975,428 P=299,726,034 P=283,031,169 P=237,690,463

As of December 31, 2017 and 2016, the cost of fully depreciated items of property and equipment still in use by the Group amounted to P=809.59 million and P=697.19 million, respectively. As of December 31, 2017 and 2016, the cost of fully depreciated items of property and equipment still in use by the Parent Company amounted to P=754.88 million and P=644.76 million, respectively.

136 *SGVFS028612* 11. Investment Properties

The movements in this account follow:

Consolidated 2017 Land Building Total Cost Balances at beginning of year P=224,974,293 P=136,787,732 P=361,762,025 Additions (Note 29) 16,515,308 68,988,466 85,503,774 Disposals (17,460,672) (4,299,059) (21,759,731) Reclassifications (Note 10) (32,751,636) (14,925,207) (47,676,843) Balances at end of year 191,277,293 186,551,932 377,829,225 Accumulated depreciation Balances at beginning of year − 37,318,995 37,318,995 Depreciation (Note 10) − 15,875,764 15,875,764 Disposals − (2,255,583) (2,255,583) Reclassifications (Note 10) − (2,649,291) (2,649,291) Balances at end of year − 48,289,885 48,289,885 Allowance for impairment losses (Note 14) Balances at beginning of year 29,875,876 9,133,814 39,009,690 Provisions − 1,885,207 1,885,207 Disposals (2,013,460) (285,525) (2,298,985) Reclassifications (Note 10) 5,719,582 711,200 6,430,782 Balances at end of year 33,581,998 11,444,696 45,026,694 Net Book Value at End of the Year P=157,695,295 P=126,817,351 P=284,512,646

Parent Company 2017 Land Building Total Cost Balances at beginning of year P=61,211,569 P=102,612,348 P=163,823,917 Additions (Note 29) 14,771,218 63,667,765 78,438,983 Disposals (326,222) (1,437,078) (1,763,300) Reclassifications (Note 10) (30,287,615) (13,186,315) (43,473,930) Balances at end of year 45,368,950 151,656,720 197,025,670 Accumulated depreciation Balances at beginning of year − 18,112,108 18,112,108 Depreciation (Note 10) − 13,009,489 13,009,489 Disposals − (777,242) (777,242) Reclassification (Note 10) − (2,119,671) (2,119,671) Balances at end of year − 28,224,684 28,224,684 Allowance for impairment losses (Note 14) Balances at beginning of year 6,661,563 9,133,814 15,795,377 Provision − 1,885,206 1,885,206 Disposals (54,222) (285,525) (339,747) Balances at end of year 6,607,341 10,733,495 17,340,836 Net Book Value at End of the Year P=38,761,609 P=112,698,541 P=151,460,150

137 *SGVFS028612* Consolidated 2016 Land Building Total Cost Balances at beginning of year P=204,459,484 P=105,201,788 P=309,661,272 Additions (Note 29) 41,829,746 49,522,434 91,352,180 Disposals (24,663,347) (14,588,080) (39,251,427) Reclassifications (Note 10) 3,348,410 (3,348,410) − Balances at end of year 224,974,293 136,787,732 361,762,025 Accumulated depreciation Balances at beginning of year − 31,816,561 31,816,561 Depreciation (Note 10) − 10,984,617 10,984,617 Disposals − (5,482,183) (5,482,183) Balances at end of year − 37,318,995 37,318,995 Allowance for impairment losses (Note 14) Balances at beginning of year 85,971,916 11,081,866 97,053,782 Provisions (Reversals) (52,619,371) 607,594 (52,011,777) Disposals (3,476,669) (2,555,646) (6,032,315) Balances at end of year 29,875,876 9,133,814 39,009,690 Net Book Value at End of the Year P=195,098,417 P=90,334,923 P=285,433,340

Parent Company 2016 Land Building Total Cost Balances at beginning of year P=40,075,456 P=70,701,256 P=110,776,712 Additions (Note 29) 27,232,322 42,762,902 69,995,224 Disposals (9,444,619) (7,503,400) (16,948,019) Reclassifications (Note 10) 3,348,410 (3,348,410) − Balances at end of year 61,211,569 102,612,348 163,823,917 Accumulated depreciation Balances at beginning of year − 11,766,398 11,766,398 Depreciation (Note 10) − 9,419,569 9,419,569 Disposals − (3,073,859) (3,073,859) Balances at end of year − 18,112,108 18,112,108 Allowance for impairment losses (Note 14) Balances at beginning of year 155,625 4,686,126 4,841,751 Provision 6,505,938 4,637,394 11,143,332 Disposals − (189,706) (189,706) Balances at end of year 6,661,563 9,133,814 15,795,377 Net Book Value at End of the Year P=54,550,006 P=75,366,426 P=129,916,432

Investment properties include real estate properties acquired in settlement of loans and receivables. The difference between the fair value of the asset upon foreclosure and the carrying value of the loan is recognized as gain or loss on initial recocontion recorded included under ‘Miscellaneous Income’.

The fair values of investment properties are disclosed in Note 5.

Direct operating expenses on investment properties (recorded in ‘Litigation expense on assets acquired’ under ‘Miscellaneous expense’) amounted to P=14.01 million, P=14.90 million and P=8.84 million in 2017, 2016 and 2015, respectively, for the Group, and P=10.21 million, P=13.09 million and P=8.06 million in 2017, 2016 and 2015, respectively, for the Parent Company (see Note 22).

Gain on initial recognition of investment properties included in ‘Miscellaneous income’ of the Group amounted to =33.89P million, =17.30P million and =35.55P million in 2017, 2016 and 2015, respectively,

138 *SGVFS028612* for the Group, and =31.53P million, P=12.67 million and P=30.70 million in 2017, 2016 and 2015, respectively, for the Parent Company (see Note 22).

Gain on sale of investment properties included in ‘Miscellaneous income’ amounted to P=5.35 million, P=8.15 million and P=10.47 million in 2017, 2016 and 2015, respectively for the Group and P=0.18 million, P=3.54 million and P=5.94 million in 2017, 2016 and 2015, respectively, for the Parent Company (see Note 22).

12. Branch Licenses

The movements in this account follow:

Consolidated Parent Company 2017 2016 2017 2016 Cost Balance at beginning of year P=1,229,977,111 P=1,185,377,111 P=609,377,111 P=565,377,111 Additions 1,814,157 44,600,000 1,814,157 44,000,000 Reclassifications (200,000) − − − Balance at end of year 1,231,591,268 1,229,977,111 611,191,268 609,377,111 Allowance for impairment losses (Note 14) Balance at beginning and end of year 232,526,929 232,526,929 232,526,929 232,526,929 P=999,064,339 P=997,450,182 P=378,664,339 P=376,850,182

The allowance for impairment losses amounting to P=232.53 million relates to branches that the Parent Company ceased to operate in 2010.

13. Other Assets

This account consists of:

Consolidated Parent Company 2017 2016 2017 2016 Software costs - net P=327,820,769 P=353,353,540 P=324,661,296 P=348,001,639 Creditable withholding tax 243,598,700 141,316,753 243,598,700 141,316,753 Prepaid expenses 122,786,531 84,489,727 111,900,595 80,194,606 Repossessed chattels - net 89,981,581 103,598,417 89,654,561 103,489,250 Refundable deposits 50,104,352 57,201,471 49,101,474 55,721,032 Advance payment to suppliers 38,976,196 25,857,400 38,976,196 25,857,400 Bills payment - contra 13,462,751 626,363,142 13,462,751 626,363,142 Documentary stamp tax on hand 6,103,931 25,806,925 3,215,220 23,048,149 Sundry debits 371,235 27,898,129 75,335 27,898,129 Others 37,456,104 20,946,370 35,094,075 14,800,243 930,662,150 1,466,831,874 909,740,203 1,446,690,343 Allowance for impairment losses (Note 14) (10,201,994) (10,201,994) (7,678,160) (7,678,160) P=920,460,156 P=1,456,629,880 P=902,062,043 P=1,439,012,183

Bills payment-contra is the contra account of bills payment under ‘Accrued expenses and other liabilities’ (see Note 17).

Advance payment to suppliers consists of various down payments made to various suppliers and contractors in connection with the Group’s and the Parent Company’s operation and other projects such as branch expansions.

139 *SGVFS028612* Software costs - net represent the carrying amount of software purchased by the Group for use in operations, net of amortization.

Others include stationeries, office supplies, and other miscellaneous assets.

In 2017, 2016 and 2015, the Group and the Parent Company recognized provision for impairment losses on certain miscellaneous assets amounting to nil, P=0.20 million and P=7.48 million, respectively.

The composition of and the movements in ‘Repossessed chattels - net’ of the Group and the Parent Company follow:

Consolidated 2017 Cars Others Total Cost Balances at beginning of year P=12,015,001 P=142,658,117 P=154,673,118 Additions (Note 29) 41,855,947 192,563,580 234,419,527 Disposals (32,065,001) (217,663,389) (249,728,390) Reclassifications (Note 10) (6,855,000) (465,308) (7,320,308) Balances at end of year 14,950,947 117,093,000 132,043,947 Accumulated depreciation Balances at beginning of year 2,883,906 36,677,976 39,561,882 Depreciation (Note 10) 3,144,224 37,757,594 40,901,818 Disposals (3,868,835) (45,245,894) (49,114,729) Reclassifications (Note 10) (1,644,972) (42,493) (1,687,465) Balances at end of year 514,323 29,147,183 29,661,506 Allowance for impairment losses (Note 14) Balances at beginning of year P=1,565,516 P=9,947,303 P=11,512,819 Provisions 649,318 6,793,918 7,443,236 Disposals (1,179,245) (5,020,067) (6,199,312) Reclassifications (Note 10) (386,272) 30,389 (355,883) Balances at end of year 649,317 11,751,543 12,400,860 Net Book Value at End of the Year P=13,787,307 P=76,194,274 P=89,981,581

Parent Company 2017 Cars Others Total Cost Balances at beginning of year P=12,015,001 P=142,471,915 P=154,486,916 Additions (Note 29) 41,855,947 192,011,578 233,867,525 Disposals (32,065,001) (217,543,833) (249,608,834) Reclassifications (Note 10) (6,855,000) (369,862) (7,224,862) Balances at end of year 14,950,947 116,569,798 131,520,745 Accumulated depreciation Balances at beginning of year 2,883,906 36,609,594 39,493,500 Depreciation (Note 10) 3,144,224 37,639,978 40,784,202 Disposals (3,868,835) (45,239,811) (49,108,646) Reclassifications (Note 10) (1,644,972) (50,106) (1,695,078) Balances at end of year 514,323 28,959,655 29,473,978 Allowance for impairment losses (Note 14) Balances at beginning of year 1,565,516 9,938,650 11,504,166 Provision 649,318 6,793,918 7,443,236 Disposals (1,179,245) (4,989,679) (6,168,924) Reclassifications (Note 10) (386,272) − (386,272) Balances at end of year 649,317 11,742,889 12,392,206 Net Book Value at End of the Year P=13,787,307 P=75,867,254 P=89,654,561

140 *SGVFS028612* Consolidated 2016 Cars Others Total Cost Balances at beginning of year P=10,730,001 P=114,513,229 P=125,243,230 Additions (Note 29) 22,680,000 202,906,603 225,586,603 Disposals (12,995,000) (174,146,215) (187,141,215) Reclassifications (Note 10) (8,400,000) (615,500) (9,015,500) Balances at end of year 12,015,001 142,658,117 154,673,118 Accumulated depreciation Balances at beginning of year 5,846,529 32,197,840 38,044,369 Depreciation (Note 10) 2,950,281 43,025,430 45,975,711 Disposals (4,803,995) (38,455,663) (43,259,658) Reclassifications (Note) (1,108,909) (89,631) (1,198,540) Balances at end of year 2,883,906 36,677,976 39,561,882 Allowance for impairment losses (Note 14) Balances at beginning of year 873,576 12,982,047 13,855,623 Provisions 1,045,676 5,968,500 7,014,176 Disposals (353,736) (9,003,244) (9,356,980) Balances at end of year 1,565,516 9,947,303 11,512,819 Net Book Value at End of the Year P=7,565,579 P=96,032,838 P=103,598,417

Parent Company 2016 Cars Others Total Cost Balances at beginning of year P=10,730,001 P=114,432,703 P=125,162,704 Additions (Note 29) 22,680,000 202,740,303 225,420,303 Disposals (12,995,000) (174,085,591) (187,080,591) Reclassifications (Note 10) (8,400,000) (615,500) (9,015,500) Balances at end of year 12,015,001 142,471,915 154,486,916 Accumulated depreciation Balances at beginning of year 5,846,529 32,152,548 37,999,077 Depreciation (Note 10) 2,950,281 42,986,151 45,936,432 Disposals (4,803,995) (38,439,474) (43,243,469) Reclassifications (Note 10) (1,108,909) (89,631) (1,198,540) Balances at end of year 2,883,906 36,609,594 39,493,500 Allowance for impairment losses (Note 14) Balances at beginning of year 873,576 12,973,394 13,846,970 Provision 1,045,676 5,968,500 7,014,176 Disposals (353,736) (9,003,244) (9,356,980) Balances at end of year 1,565,516 9,938,650 11,504,166 Net Book Value at End of the Year P=7,565,579 P=95,923,671 P=103,489,250

In 2017, loss on initial recognition of repossessed chattels included in ‘Miscellaneous income’ amounted to =18.90P million and =18.79P million, for the Group and the Parent Company, respectively. In 2016 and 2015, gain on initial recognition of repossessed chattels included in ‘Miscellaneous income’ amounted to P=25.02 million and P=6.00 million, respectively, for the Group and P=25.07 million and P=6.00 million, respectively, for the Parent Company (Note 22).

Loss on sale of repossessed chattels included in ‘Miscellaneous income’ amounted to P=28.27 million and P=28.30 million in 2017, for the Group and the Parent Company, respectively. Loss on sale of repossessed chattels included in ‘Miscellaneous income’ amounted to P=13.78 million and P=13.79 million in 2016, respectively, for the Group and the Parent Company, respectively (see Note 22). Gain on sale of repossessed chattels include in ‘Miscellaneous income’ amounted to

141 *SGVFS028612* P=12.43 million and P=12.28 million in 2015, respectively, for the Group and the Parent Company, respectively (see Note 22).

Movements in ‘Software costs - net’ follow:

Consolidated Parent Company 2017 2016 2017 2016 Cost Balance at beginning of year P=599,078,204 P=572,885,012 P=584,037,987 P=559,242,555 Additions 54,618,179 26,193,192 53,650,078 24,795,432 Reclassifications 200,000 − − − 653,896,383 599,078,204 637,688,065 584,037,987 Accumulated amortization Balance at beginning of year 245,724,664 171,790,985 236,036,348 165,394,523 Amortization (Note 10) 80,336,227 73,933,679 76,990,421 70,641,825 Reclassifications 14,723 − − − Balance at end of year 326,075,614 245,724,664 313,026,769 236,036,348 Net Book Value at the End of the Year P=327,820,769 P=353,353,540 P=324,661,296 P=348,001,639

14. Allowance for Credit and Impairment Losses

Movements in the allowance for credit and impairment losses follow:

Consolidated Parent Company 2017 2016 2017 2016 Balances at beginning of year Loans and receivables (Note 8) P=913,019,864 P=769,545,245 P=797,284,966 P=721,268,058 Property and equipment (Note 10) 1,912,400 − − − Investment properties (Note 11) 39,009,690 97,053,782 15,795,377 4,841,751 Branch licenses (Note 12) 232,526,929 232,526,929 232,526,929 232,526,929 Repossessed chattels (Note 13) 11,512,819 13,855,623 11,504,166 13,846,970 Other assets (Note 13) 10,201,994 7,866,310 7,678,160 7,478,160 1,208,183,696 1,120,847,889 1,064,789,598 979,961,868 Provision for the year 241,076,252 155,922,043 234,917,540 147,571,357 Disposals (45,529,482) (15,389,295) (39,301,801) (9,546,686) Reversals/others 12,044,741 (53,196,942) (386,272) (53,196,941) 207,591,511 87,335,806 195,229,467 84,827,730 Balances at end of year Loans and receivables (Note 8) 1,103,022,464 913,019,864 989,801,606 797,284,966 Property and equipment (Note 10) 12,596,266 1,912,400 279,328 − Investment properties (Note 11) 45,026,694 39,009,690 17,340,836 15,795,377 Branch licenses (Note 12) 232,526,929 232,526,929 232,526,929 232,526,929 Repossessed chattels (Note 13) 12,400,860 11,512,819 12,392,206 11,504,166 Other assets (Note 13) 10,201,994 10,201,994 7,678,160 7,678,160 P=1,415,775,207 P=1,208,183,696 P=1,260,019,065 P=1,064,789,598

142 *SGVFS028612* A reconciliation of the allowance for credit losses by class of loans and receivables follows (in thousands):

Consolidated 2017 Domestic Bills Commercial Consumption Real Estate Purchased Others Total Balance at beginning of year P=508,809 P=219,143 P=14,247 P=20,399 P=150,422 P=913,020 Provisions for the year 169,140 24,426 − − 33,468 227,034 Reversals/others (37,273) 72,778 (8,831) (20,399) (43,307) (37,032) Balance at end of year P=640,676 P=316,347 P=5,416 P=− P=140,583 P=1,103,022 Individual impairment P=320,355 P=68,772 P=5,412 P=− P=32,491 P=427,030 Collective impairment 320,321 247,575 4 − 108,092 675,992 P=640,676 P=316,347 P=5,416 P=− P=140,583 P=1,103,022 Gross amount of loans and receivables individually determined to be impaired P=429,950 P=69,047 P=5,587 P=− P=39,638 P=544,222

Parent Company 2017 Domestic Bills Commercial Consumption Real Estate Purchased Others Total Balance at beginning of year P=448,839 P=191,714 P=7,400 P=20,399 P=128,933 P=797,285 Provisions for the year 167,997 23,845 − − 33,468 225,310 Reversals/others 33,134 9,256 (7,400) (20,399) (47,384) (32,793) Balance at end of year P=649,970 P=224,815 P=– P=− P=115,017 P=989,802 Individual impairment P=201,541 P=− P=− P=− P=8,869 P=210,410 Collective impairment 448,429 224,815 − − 106,148 779,392 P=649,970 P=224,815 P=− P=− P=115,017 P=989,802 Gross amount of loans and receivables individually determined to be impaired P=386,066 P=− P=− P=− P=19,869 P=405,935

Consolidated 2016 Domestic Bills Commercial Consumption Real Estate Purchased Others Total Balance at beginning of year P=362,454 P=207,256 P=24,866 P=5,467 P=169,502 P=769,545 Provisions for the year 130,929 57,427 (1,449) 14,932 (5,167) 196,672 Reversals/others 15,426 (45,540) (9,170) − (13,913) (53,197) Balance at end of year P=508,809 P=219,143 P=14,247 P=20,399 P=150,422 P=913,020 Individual impairment P=350,466 P=139,405 P=6,509 P=− P=21,455 P=517,869 Collective impairment 158,343 79,738 7,738 20,399 128,967 395,151 P=508,809 P=219,143 P=14,247 P=20,399 P=150,422 P=913,020 Gross amount of loans and receivables individually determined to be impaired P=894,379 P=248,032 P=7,687 P=− P=41,298 P=1,191,396

Parent Company 2016 Domestic Bills Commercial Consumption Real Estate Purchased Others Total Balance at beginning of year P=364,703 P=194,192 P=16,571 P=5,467 P=140,335 P=721,268 Provisions for the year 68,709 43,062 − 14,932 2,511 129,214 Reversals/others 15,427 (45,540) (9,170) − (13,913) (53,197) Balance at end of year P=448,839 P=191,714 P=7,401 P=20,399 P=128,933 P=797,285 Individual impairment P=184,831 P=− P=− P=− P=− P=184,831 Collective impairment 264,008 191,714 7,401 20,399 128,933 612,454 P=448,839 P=191,714 P=7,401 P=20,399 P=128,933 P=797,285 Gross amount of loans and receivables individually determined to be impaired P=552,972 P=− P=− P=− P=− P=552,972 143 *SGVFS028612* Below is the breakdown of provision for (reversal of) credit and impairment losses:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Loans and receivables P=227,033,785 P=196,671,560 P=210,622,430 P=225,309,770 P=129,213,849 P=176,953,835 Repossessed chattels 7,443,236 7,014,176 6,523,886 7,443,236 7,014,176 6,515,241 Property and equipment 4,714,024 1,912,400 – 279,328 – – Investment properties 1,885,207 (52,011,777) 41,423,866 1,885,206 11,143,332 4,513,531 Other assets – 2,335,684 7,478,160 – 200,000 7,478,160 P=241,076,252 P=155,922,043 P=266,048,342 P=234,917,540 P=147,571,357 P=195,460,767

15. Deposit Liabilities

Of the total deposit liabilities of the Group as of December 31, 2017 and 2016, 57.04% and 52.12%, respectively, are subject to periodic interest repricing. Remaining deposit liabilities bear annual fixed interest rates ranging from nil to 4.50% in 2017 and from nil to 2.88% in 2016, respectively.

On March 27, 2014, the BSP through Circular 830 approved the 1.00% increase in reserve requirements effective April 11, 2014, thereby increasing the reserve requirements on non-FCDU deposit liabilities of the Parent Company and LSB from 18.00% to 19.00% and 6.00% to 7.00% respectively. As mandated by the Circular, only demand deposit accounts maintained by the bank with the BSP are eligible for compliance with reserve requirements, thereby excluding government securities and cash in vault as eligible reserves. Further, deposits maintained with the BSP in compliance with the reserve requirement shall no longer be paid interest. On May 8, 2014, the BSP, through BSP Circular 832, approved the 1.00% increase in reserve requirement effective May 30, 2014, thereby further increasing the reserve requirements on non-FCDU deposit liabilities of the Parent Company and LSB from 19.00% to 20.00% and from 7.00% to 8.00%, respectively.

The Group’s liquidity and statutory reserves as reported to the BSP follow:

Consolidated Parent Company 2017 2016 2017 2016 Due from BSP P=15,487,675,837 P=11,015,517,416 P=15,091,432,509 P=10,872,258,187

As of December 31, 2017 and 2016, the Group is in compliance with the regulations.

Details of interest expense on deposit liabilities follow:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Demand P=2,456,744 P=1,938,352 P=1,785,501 P=2,456,744 P=1,938,352 P=1,785,501 Savings 707,442,240 327,306,744 287,391,613 697,253,892 315,475,701 270,638,593 Time 318,812,552 319,618,027 274,848,318 300,798,222 300,207,579 253,812,635 LTNCD 96,808,815 − − 96,808,815 − − P=1,125,520,351 P=648,863,123 P=564,025,432 P=1,097,317,673 P=617,621,632 P=526,236,729

Long-Term Negotiable Certificates of Deposit (LTNCD) On May 4, 2017, the BSP approved the Parent Company’s issuance of the P=3.00 billion LTNCD, with a right to increase the aggregate issue up to =5P billion in the even of over subscription.

On June 16, 2017, the Parent Company listed its LTNCD issuance amounting to P=4.18 billion through the PDEx. The minimum investment was P=50,000 with increments of P=10,000 thereafter. The peso-denominated issue will mature on December 16, 2022 with nominal interest rate of 4.125% 144 *SGVFS028612* and EIR of 4.287%, payable every quarter. The proceeds was used to diversify the Parent Company’s maturity profile and funding sources and general corporate purposes.

16. Redeemable Preferred Shares

In 2013, the Parent Company acquired 29,000 redeemable preferred shares at P=1,000 par value from LSB (see Note 7). In 2016, the Parent Company acquired additional 1,200 redeemable preferred shares amounting to P=1.20 million. Details of LSB’s redeemable preferred shares as of December 31, 2017 and 2016 follow:

Shares Amount Preferred shares – =P1,000 par value Authorized 50,000 P=50,000,000 Issued and outstanding Balances at beginning and end of year 30,200 P=30,200,000

The preferred shares has the following features: a. The minimum subscription is 100 shares and payable in cash; b. The shares shall earn monthly interest at a rate to be fixed by the BOD, but such interest shall not be less than the prevailing market interest rates and said shares shall not be treated as time deposit, deposit substitute or as other form of borrowings; c. The interest shall be paid in the form of dividends cumulatively, which may be declared annually or as often as the BOD may determine; d. The shares shall have preference in the distribution of dividends and in the distribution of assets in case of liquidation or dissolution, provided, however that no dividend shall be declared or paid on redeemable shares in the absence of sufficient undivided profits, free surplus and approval of the BSP; e. The shares are non-voting on matters provided for in the last paragraph of Section 6 of the Corporation Code; f. Pre-emptive rights are not available on preferred shares nor shall they be subject to one and the shares shall be held for five (5) years with a right of alienation or encumbrance of the same to any third person within the period of five years from the original date of subscription, provided, however, that on the 5th year the holder shall be obliged to surrender the same to the corporation and upon prior approval of the BSP and in compliance with the provisions of the MORB and the BSP’s circulars regarding this matter, the corporation shall be obliged to take up the subscription at the price when the preferred shares of stock were originally subscribed. Provided that shares redeemed are replaced with at least an equivalent amount of newly paid-in shares so that the total paid-in capital stock is maintained at the same level immediately prior to redemption and provided further, that the corporation is not insolvent or if such redemption will not cause insolvency, impairment of capital or inability of the corporation to meet its debts as they mature; and g. As of December 31, 2013, LSB has not yet created a sinking fund pending request from BSP to redeem and retire the preferred shares. The fund that will be used to redeem the preferred shares will be taken from the equity infused by the Parent Company.

As discussed in Note 9, the SEC approved LSB’s application for increase in authorized capital stock on January 13, 2016.

145 *SGVFS028612* The shares may again be disposed of by LSB for a price fixed by the BOD. Based on the BOD resolution on March 6, 2013, the entire redeemable preferred shares of LSB will be retired after its redemption subject to BSP’s approval. As of December 31, 2017 and 2016, the entire redeemable preferred shares of LSB are still subject to BSP’s approval.

17. Accrued Expenses and Other Liabilities

Accrued expenses account consist of:

Consolidated Parent Company 2017 2016 2017 2016 Accrued expenses P=399,203,511 P=322,888,723 P=386,883,423 P=315,439,003 Accrued interest payable 151,195,970 97,510,939 150,763,406 97,137,965 P=550,399,481 P=420,399,662 P=537,646,829 P=412,576,968

Accrued expenses consist of accruals and provisions for general expenses, bonuses and insurance on deposits, fees and advertisements.

Other liabilities include:

Consolidated Parent Company 2017 2016 2017 2016 Accounts payable P=648,749,723 P=547,012,550 P=644,825,240 P=538,416,916 Bills purchased-contra (Note 8) 498,529,953 139,337,392 498,529,953 139,337,392 Acceptances payable (Note 8) 89,333,544 38,298,006 89,333,544 38,298,006 Withholding taxes and other taxes payable 85,215,233 51,540,202 84,467,025 51,240,746 Retirement liability (Note 20) 81,624,895 49,731,351 76,072,917 45,183,200 Dormant manager’s checks 47,805,213 49,515,703 47,805,213 49,515,703 Bills payment 9,815,035 632,856,221 9,815,035 632,856,221 Derivative liabilities (Note 7) 5,904,377 7,447,751 5,904,377 7,447,751 Redeemable preferred shares (Note 16) 500,000 500,000 − − Income tax payable 219,637 219,637 − − Others 97,965,442 7,536,488 98,666,427 7,098,463 P=1,565,663,052 P=1,523,995,301 P=1,555,419,731 P=1,509,394,398

Accounts payable consists of payables to service providers, advance payments from customers and unreleased checks.

Bills purchased-contra is the contra account of bills purchased under loans. Bills purchased are receivables from customers from converting checks and bank drafts to cash. As of December 31, 2017 and 2016, bills purchased-contra consists mainly of DOSRI accounts.

Acceptances payable is the contra account of customer liability under acceptances included under commercial loans.

Bills payment pertains to various payments made by depositors of the Parent Company as an intermediary for various merchants.

Others consist mainly of sundry credits, advances, payables to agencies servicing employee welfare such as Social Security System, Home Development Mutual Fund and Medicare. 146 *SGVFS028612* 18. Maturity Analysis of Assets and Liabilities

The following table shows an analysis of assets and liabilities analyzed according to whether they are expected to be recovered or settled within one year and beyond one year from statements of financial position date:

Consolidated 2017 2016 Due Within Due Beyond Due Within Due Beyond One Year One Year Total One Year One Year Total Financial Assets Cash and other cash items P=1,639,300,590 P=− P=1,639,300,590 P=1,684,403,861 P=− P=1,684,403,861 Due from BSP 16,017,675,837 − 16,017,675,837 13,415,517,416 − 13,415,517,416 Due from other banks 3,820,050,486 − 3,820,050,486 4,090,364,784 − 4,090,364,784 Interbank loans receivable/SPURA 3,303,644,739 23,750,000 3,327,394,739 581,831,467 96,000,000 677,831,467 Financial assets at FVPL 48,134,331 − 48,134,331 2,555,185 − 2,555,185 AFS investments 169,591,351 19,025,433,213 19,195,024,564 146,278,223 11,597,651,996 11,743,930,219 HTM investment − − − 254,550,191 3,295,350,413 3,549,900,604 Loans and receivables – gross 19,078,809,903 39,913,496,968 58,992,306,871 16,616,828,833 23,224,271,469 39,841,100,302 Other assets 490,000 49,614,352 50,104,352 1,035,710 56,165,761 57,201,471 44,077,697,237 59,012,294,533 103,089,991,770 36,793,365,670 38,269,439,639 75,062,805,309 Non-financial Assets Property and equipment – net − 586,595,780 586,595,780 − 513,030,557 513,030,557 Investment properties – net − 284,512,646 284,512,646 − 285,433,340 285,433,340 Branch licenses – net − 999,064,339 999,064,339 − 997,450,182 997,450,182 Deferred tax asset − 176,717,759 175,767,891 − 53,435,098 53,451,334 Goodwill − 244,327,006 244,327,006 − 244,327,006 244,327,006 Other assets 463,718,107 406,637,697 871,305,672 890,572,874 508,855,534 1,399,428,408 P=44,541,415,344 P=61,710,149,760 106,251,565,104 P=37,683,938,544 P=40,871,971,356 78,555,926,136 Less: Unearned interest and discounts (loans) 235,511,770 30,998,551 Allowance for credit and impairment losses – loans and receivables 1,103,022,464 913,019,864 P=104,913,030,870 P=77,611,891,486 Financial Liabilities Deposit liabilities P=81,972,919,272 P=8,006,668,527 P=89,979,587,799 P=59,123,635,173 P=4,171,464,853 P=63,295,100,026 Manager’s checks 724,047,158 − 724,047,158 404,180,308 − 404,180,308 Accrued expenses 550,399,481 − 550,399,481 420,399,662 − 420,399,662 Other liabilities 1,205,425,208 − 1,205,425,208 1,377,238,397 − 1,377,238,397 84,452,791,119 8,006,668,527 92,459,459,646 61,325,453,540 4,171,464,853 65,496,918,393 Non-financial Liabilities Other liabilities 284,164,927 76,072,917 360,237,844 96,525,553 50,231,351 146,756,904 P=84,736,956,046 P=8,082,741,444 P=92,819,697,490 P=61,421,979,093 P=4,221,696,204 P=65,643,675,297

Parent 2017 2016 Due Within Due Beyond Due Within Due Beyond One Year One Year Total One Year One Year Total Financial Assets Cash and other cash items P=1,597,057,290 P=− P=1,597,057,290 P=1,653,720,370 P=− P=1,653,720,370 Due from BSP 15,621,432,509 − 15,621,432,509 12,722,258,187 − 12,722,258,187 Due from other banks 3,749,409,945 − 3,749,409,945 3,995,280,423 − 3,995,280,423 Interbank loans receivable/SPURA 2,845,174,517 23,750,000 2,868,924,517 493,077,515 96,000,000 589,077,515 Financial assets at FVPL 48,134,331 − 48,134,331 2,555,185 − 2,555,185 AFS investments 169,591,351 18,873,224,505 19,042,815,856 176,478,223 11,597,651,996 11,774,130,219 HTM investment − − − 239,560,181 3,094,967,870 3,334,528,051 Loans and receivables – gross 18,645,831,587 39,173,544,952 57,819,376,539 16,465,803,192 22,309,163,493 38,774,966,685 Other assets − 49,101,474 49,101,474 194,611 55,526,421 55,721,032 P=42,676,631,530 P=58,119,620,931 P=100,796,252,461 P=35,748,927,887 P=37,153,309,780 P=72,902,237,667

(Forward)

147 *SGVFS028612* Parent 2017 2016 Due Within Due Beyond Due Within Due Beyond One Year One Year Total One Year One Year Total Non-financial Assets Property and equipment – net P=− P=540,789,316 P=540,789,316 P=− P=451,969,911 P=451,969,911 Investment properties – net − 151,460,150 151,460,150 − 129,916,432 129,916,432 Branch licenses – net − 378,664,339 378,664,339 − 376,850,182 376,850,182 Deferred tax asset − 318,065,832 318,065,832 − 194,482,918 194,499,154 Investment in subsidiary − 1,215,713,175 1,215,713,175 − 1,204,884,010 1,204,884,010 Other assets 446,322,872 406,637,697 852,960,569 890,356,639 492,934,512 1,383,274,915 P=43,122,954,402 P=61,130,951,440 104,253,905,842 P=36,639,284,526 P=40,004,347,745 76,643,632,271 Less: Unearned interest and discounts (loans) 170,640,420 8,332,311 Allowance for credit and impairment losses – loans and receivables 989,801,606 797,284,966 P=103,093,463,816 P=75,838,014,994 Financial Liabilities Deposit liabilities P=80,207,281,030 P=7,975,735,688 P=88,183,016,718 P=57,772,149,864 P=3,771,497,267 P=61,543,647,131 Manager’s checks 724,047,158 − 724,047,158 404,180,308 − 404,180,308 Accrued expenses 537,646,829 − 537,646,829 412,576,968 − 412,576,968 Other liabilities 1,197,064,783 − 1,197,064,783 1,367,573,983 − 1,367,573,983 82,666,039,800 7,975,735,688 90,641,775,488 59,956,481,123 3,771,497,267 63,727,978,390 Non-financial Liabilities Other liabilities 282,282,031 76,072,917 358,354,948 96,637,215 45,183,200 141,820,415 P=82,948,321,831 P=8,051,808,605 P=91,000,130,436 P=60,053,118,338 P=3,816,680,467 P=63,869,798,805

19. Equity

As of December 31, 2017 and 2016, the Parent Company’s capital stock consists of:

Shares Amount 2017 2016 2017 2016 Common shares - P=10 par value Authorized 1,500,000,000 1,500,000,000 P=15,000,000,000 P=15,000,000,000 Issued and outstanding Issued and outstanding 1,200,000,000 43,683,500 P=12,000,000,000 P=436,835,000 Issued during the year − 1,156,316,500 − 11,563,165,000 Balances at end of year 1,200,000,000 1,200,000,000 P=12,000,000,000 P=12,000,000,000

Preferred shares A - P=10 par value Authorized − − P=− P=− Issued and outstanding Balance at beginning of year − 356,316,500 − 3,563,165,000 Issuance of preferred shares A − − − − Conversion of preferred shares A − (356,316,500) − (3,563,165,000) − − − − Preferred shares B - P=10 par value Authorized − − − − Issued and outstanding Balance at beginning of year − 210,000,000 − 2,100,000,000 Issuance of preferred shares B − − − − Conversion of preferred shares B − (210,000,000) − (2,100,000,000) − − − − − − P=− P=−

148 *SGVFS028612* The preferred shares have the following features: a. Preferred stockholders are entitled to receive preferential but non-cumulative dividends at the rate to be determined by the BOD. b. Preferred stocks are redeemable at the option of the Parent Company at any time provided that the redemption price shall not be lower than the par value or higher than 110.00% of said par value; c. In the event of any voluntary or involuntary liquidation, the preferred stockholders are entitled to receive the liquidation value of the said shares equivalent to 110.00% of the par value plus any unpaid but declared dividends thereon. If the net assets of the Parent Company shall be insufficient to pay in full the liquidation value of all the preferred stock, then such net resources shall be distributed among such preferred stock ratably in accordance with the respective liquidation value of the shares they are holding.

Surplus Reserves In compliance with existing BSP regulations, 10.00% of the net profits realized by the Parent Company from its trust business is appropriated to surplus reserve. The yearly appropriation is required until the surplus reserve for trust business equals 20.00% of the Parent Company’s regulatory capital.

In 2017 and 2016, the Parent Company’s BOD approved to appropriate reserves for trust reserves amounting to P=0.64 million and P=0.93 million, respectively. In 2017, the Parent Company’s BOD approved to reverse appropriation of reserves for self-insurance amounting to P=106.95 million.

Capital Management The Group considers the equity attributable to the equity holders of the Parent Company as the capital base of the Group. The primary objectives of the Group’s capital management are to ensure that it complies with externally imposed capital requirements and that it maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities and assessment of prospective business requirements or directions. In order to maintain or adjust the capital structure, the Group may adjust the amount and mode of dividend payment to shareholders, issue capital securities or undertake a share buy-back. The processes and policies guiding the determination of the sufficiency of capital for the Group relative to its business risks are the very same methodology that have been incorporated into the Group’s Internal Capital Adequacy Assessment Process (ICAAP) in compliance with the requirements of BSP Circular No. 639 for its adoption. Under this framework, the assessment of risks extends beyond the Pillar 1 set of credit, market and operational risks and onto other risks deemed material by the Group. The level and structure of capital are assessed and determined in light of the Group’s business environment, plans, performance, risks and budget; as well as regulatory edicts. BSP requires submission of an ICAAP document every January 31.

The Group had complied with all externally imposed capital requirements throughout the year.

Regulatory Qualifying Capital In 2013, the determination of the Parent Company’s compliance with regulatory requirements and ratios is based on the amount of the Parent Company’s ‘unimpaired capital’ (regulatory net worth) reported to the BSP, which is determined on the basis of regulatory policies. In addition, the risk- based capital ratio of a bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be less than 10.00% for both solo basis (head office and branches) and consolidated basis

149 *SGVFS028612* (parent company and subsidiaries engaged in financial allied undertakings). Qualifying capital and risk-weighted assets are computed based on BSP regulations.

The regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1 (core) and Tier 2 (supplementary) capital. Tier 1 capital comprises share capital, retained earnings (including current year profit) and non-controlling interest less required deductions such as deferred tax and unsecured credit accommodations to DOSRI. Tier 2 capital includes unsecured subordinated note, revaluation reserves and general loan loss provision. Certain items are deducted from the regulatory Gross Qualifying Capital, such as but not limited to equity investments in unconsolidated subsidiary banks and other financial allied undertakings, but excluding investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis) and equity investments in subsidiary non-financial allied undertakings.

Risk-weighted assets are determined by assigning defined risk weights to statement of financial position exposures and to the credit equivalent amounts of off-balance sheet exposures. Certain items are deducted from risk-weighted assets, such as the excess of general loan loss provision over the amount permitted to be included in Tier 2 capital. The risk weights vary from 0.00% to 125.00% depending on the type of exposure, with the risk weights of off-balance sheet exposures being subjected further to credit conversion factors.

Following is a summary of risk weights and selected exposure types:

Risk weight Exposure/Asset type* 0% Cash on hand; claims collateralized by securities issued by the non-government, BSP; loans covered by the Trade and Investment Development Corporation of the Philippines; real estate mortgages covered by the Home Guarantee Corporation 20% COCI, claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality; claims guaranteed by foreign incorporated banks with the highest credit quality; loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation 50% Housing loans fully secured by first mortgage on residential property; Local Government Unit (LGU) bonds which are covered by Deed of Assignment of Internal Revenue allotment of the LGU and guaranteed by the LGU Guarantee Corporation 75% Direct loans of defined Small Medium Enterprise and microfinance loans portfolio; nonperforming housing loans fully secured by first mortgage 100% All other assets (e.g., real estate assets) excluding those deducted from capital (e.g., deferred tax) 125% All NPLs (except nonperforming housing loans fully secured by first mortgage) and all nonperforming debt securities * Not all inclusive

With respect to off-balance sheet exposures, the exposure amount is multiplied by a credit conversion factor (CCF), ranging from 0.00% to 100.00%, to arrive at the credit equivalent amount, before the risk weight factor is multiplied to arrive at the risk-weighted exposure. Direct credit substitutes (e.g., guarantees) have a CCF of 100.00%, while items not involving credit risk has a CCF of 0.00%.

On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on Minimum Capital Requirements, which provides the implementing guidelines on the revised risk- based capital adequacy framework particularly on the minimum capital and disclosure requirements for universal banks and commercial banks, as well as their subsidiary banks and quasi-banks, in accordance with the Basel III standards. The circular is effective on January 1, 2014.

150 *SGVFS028612* The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.00% and Tier 1 capital ratio of 7.50%. It also introduces a capital conservation buffer of 2.50% comprised of CET1 capital. The BSP’s existing requirement for Total CAR remains unchanged at 10.00% and these ratios shall be maintained at all times.

Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility criteria for capital instruments under the revised capital framework shall no longer be recognized as capital upon the effectivity of Basel III. Capital instruments issued under BSP Circular Nos. 709 and 716 (the circulars amending the definition of qualifying capital particularly on Hybrid Tier 1 and Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781, shall be recognized as qualifying capital until December 31, 2015. In addition to changes in minimum capital requirements, this Circular also requires various regulatory adjustments in the calculation of qualifying capital.

On June 27, 2014, the BSP issued Circular No. 839, REST Limit for Real Estate Exposures which provides the implementing guidelines on the prudential REST limit for universal, commercial, and thrift banks on their aggregate real estate exposures. The Circular sets out a minimum REST limit of 6.00% CET1 capital ratio and 10.00% risk-based capital adequacy ratio, on a solo and consolidated basis, under a prescribed write-off rate of 25.00% on the Group’s real estate exposure. These limits shall be complied with at all times.

On June 9, 2015, the BSP issued Circular No. 881, Implementing Guidelines on the Basel III Leverage Ratio Framework, which provides implementing guidelines for universal, commercial, and their subsidiary banks/quasi banks. The circular sets out a minimum leverage ratio of 5.00% on a solo and consolidated basis and shall be complied with at all times.

The CAR of the Group and of the Parent Company as reported to the BSP as of December 31, 2017 and 2016 follows:

Consolidated Parent Company 2017 2016 2017 2016 Common Equity Tier 1 Capital P=10,475 P=10,570 P=10,243 P=10,270 Additional Tier 1 Capital − − − − Tier 1 capital 10,475 10,570 10,243 10,270 Tier 2 capital 491 331 478 318 Total qualifying capital P=10,966 P=10,901 P=10,721 P=10,588 Credit RWA P=49,861 P=46,439 P=48,542 P=38,931 Market RWA 1,340 222 1,340 223 Operational RWA 4,696 4,355 4,365 4,224 Total RWA P=55,897 P=51,016 P=54,247 P=43,378 Common Equity Tier 1 Ratio 1 18.74% 20.72% 18.88% 23.68% Additional Tier 1 Ratio 0.00% 0.00% 0.00% 0.00% Tier 1 capital ratio 18.74% 20.72% 18.88% 23.68% Tier 2 capital ratio 0.88% 0.65% 0.88% 0.73% Risk-based capital adequacy ratio 19.62% 21.37% 19.76% 24.41%

As of December 31, 2017 and 2016, the Group was in compliance with the required CAR.

151 *SGVFS028612* On October 29, 2014, the BSP issued amendments to Circular No. 854 which required a new minimum capitalization for Banks. The Parent Company, as a commercial bank with more than 100 branches, was required to increase its capitalization to P=15.00 billion.

On January 28, 2015 and February 25, 2015, the BOD of the Parent Company and the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, respectively, approved the issuance of the remaining 46,070,226 unissued preferred shares (A and B) at P=10.00 par value in favor of JGSCSC and RRHI as follows:

No. of Shares Stockholder Types of Shares Subscribed Par Value Amount JGSCSC Preferred A 27,404,962 P=10 P=274,049,620 Preferred B 237,174 10 2,371,740 RRHI Preferred A 18,269,974 10 182,699,740 Preferred B 158,116 10 1,581,160 Total 46,070,226 P=460,702,260

Furthermore, the BOD also approved the following resolutions: ∂ Conversion of all preferred shares of the Parent Company, whether issued or unissued, particularly the 356.32 million preferred shares A and the 210.00 million preferred shares B, into common shares, and removal of all the other class of shares of the Parent Company, except common shares. ∂ Increase in the Parent Company’s authorized capital stock from =6.10P billion divided into 610.00 million common shares with par value of P=10.00 each. ∂ The total authorized stock of the Parent Company is P=15.00 billion divided into 1.50 billion common shares with a par value of P=10.00 each.

On March 15, 2015, JGSCSC acquired additional preferred shares A and B of 27,404,962 shares and 237,174 shares, respectively.

In 2015, RRHI acquired additional preferred shares A and B of 18,269,974 shares and 158,116 shares, respectively.

On June 17, 2015, RRHI subscribed to an additional 297,094,118 common shares at P=10.00 per share.

On July 8, 2015, JGSCSC subscribed to an additional 292,905,882 common shares at P=10.00 per share.

On July 9, 2015, the Parent Company BOD approved the increase in authorized capital stock amounting to P=8.90 billion composed of 890.00 million common shares at P=10.00 per share. Out of the =8.90P billion increase, =5.90P billion was paid-up and subscribed as follows:

No. of Shares Stockholder Subscribed Amount JGSCSC 292,905,882 P=2,929,058,820 RRHI 297,094,118 2,970,941,180 Total 590,000,000 P=5,900,000,000

152 *SGVFS028612* On November 15, 2015, the BSP approved the Parent Company’s capital build-up program with the following milestones: 1. Capital infusion from unissued shares up to the existing authorized capital stock of P=6.10 billion. 2. Capital infusion from the increase in authorized capital stock from P=6.10 billion to P=15.00 billion of which P=12.00 billion is paid up. 3. Internally generated capital based on the Parent Company’s financial projections for the period 2015 to 2019.

The approval of BSP to the capital build-up program further provides that the Parent Company shall: 1. Refrain from declaring and distributing cash dividends until the =15.00P billion minimum capital requirement is attained; 2. Call on its stockholders to infuse additional capital in case of shortfall in internally-generated income to meet the target capital levels; and 3. Submit progress reports with supporting documents, duly noted by its BOD, to the Central Point of Contact Department II, within 20 banking days from end of December of each tear until the Bank is deemed by the BSP to have fully complied with its capital build-up program.

On December 15, 2015, the Parent Company filed its application for the increase in its authorized capital stock as approved by the BOD and the BSP with the SEC.

On January 29, 2016, the SEC approved the Parent Company’s application for the increase in authorized capital stock from P=6.10 billion divided into 43.68 million common shares, 356.32 million preferred shares A and 210.00 million preferred shares B of P=10.00 par value each, to P=12.00 billion divided into 633.64 million common shares, 356.32 million preferred shares A and 210.00 million preferred shares B of =10.00P par value each.

In 2016, the Parent Company issued 590.00 million common shares amounting to P=5.90 billion in exchange for the deposits for future subscriptions.

In 2016, the Parent Company removed all the other classes of shares, except common shares, and converted its 356.32 million preferred shares A and 210.00 million preferred shares B to 566.32 million common shares with =10.00P par value.

Surplus As of December 31, 2017 and 2016, a portion of the Parent Company’s retained earnings amounting to =181.54P million and P=57.87 million, respectively, relating to deferred tax asset, P=106.28 million and P=129.76 million, respectively, relating to unrealized gain on foreclosure of investment properties and respossessed chattels, and P=7.10 million and P=6.25 million, respectively, relating to changes in fair value of financial instruments at FVPL, P=28.18 million and P=22.39 million, respectively, relating to the share in net income from Subsidiary, is not available for dividend declaration in accordance with SEC Memorandum Circular No. 11 and SRC Rule 68.

20. Retirement Plan

The Parent Company has a noncontributory defined benefit retirement covering substantially all its officers and regular employees. Under this retirement plan, all covered officers and employees are entitled to cash benefits after satisfying certain age and service requirements. In 2008, the Parent Company established a plan asset for its defined benefit retirement plan (see Note 24).

153 *SGVFS028612* LSB has an unfunded noncontributory retirement plan covering all its regular permanent employees. Under the retirement plan, all employees are entitled to cash benefits after satisfying certain age and service requirements.

The latest actuarial valuation of the retirement plan of the Group was made as of December 31, 2017. The principal actuarial assumptions used in determining retirement liability of the Group as of January 1 follow:

Parent Company LSB 2017 2016 2017 2016 Average remaining working life in years 6 6 8 10 Discount rate 5.75% 5.27% 5.79% 5.54% Salary rate increase 5.70% 5.70% 5.70% 5.70%

The amounts recognized in the statements of financial position follow:

Consolidated Parent Company 2017 2016 2017 2016 Present value of defined benefit obligation P=159,432,652 P=130,697,133 P=153,880,674 P=126,148,982 Fair value of plan assets (77,807,757) (80,965,782) (77,807,757) (80,965,782) Retirement liability P=81,624,895 P=49,731,351 P=76,072,917 P=45,183,200

The amounts of ‘Retirement expense’ included in ‘Compensation and fringe benefits’ in the statements of income follow:

Consolidated Parent Company 2017 2016 2017 2016 Current service cost P=24,820,397 P=26,724,158 P=23,067,077 P=25,293,666 Net interest cost 2,632,507 3,422,140 2,381,155 3,277,099 P=27,452,904 P=30,146,298 P=25,448,232 P=28,570,765

Changes in net defined benefit obligation (DBO) of funded funds follow:

Present Value Fair Value of Net Retirement Consolidated of DBO Plan Assets Liability January 1, 2017 P=130,697,133 P=80,965,782 P=49,731,351 Net Benefit Cost in Consolidated Statement of Income Current service cost 24,820,397 − 24,820,397 Net interest cost 6,721,274 4,088,767 2,632,507 Sub-total 31,541,671 4,088,767 27,452,904 Benefits paid (5,273,704) (5,273,704) − Remeasurement in OCI Return on plan assets (excluding amount included in net interest) − (1,973,088) 1,973,088

(Forward)

154 *SGVFS028612* Present Value Fair Value of Net Retirement Consolidated of DBO Plan Assets Liability Actuarial changes arising from experience adjustments P=9,758,889 P=− P=9,758,889 Actuarial changes arising from changes in financial/ demographic assumptions (7,291,337) − (7,291,337) Sub-total 2,467,552 (1,973,088) 4,440,640 December 31, 2017 P=159,432,652 P=77,807,757 P=81,624,895

January 1, 2016 P=123,620,708 P=55,090,638 P=68,530,070 Net Benefit Cost in Consolidated Statement of Income Current service cost 26,724,158 − 26,724,158 Net interest cost 6,089,146 2,667,006 3,422,140 Sub-total 32,813,304 2,667,006 30,146,298 Benefits paid (1,225,393) (1,225,393) − Remeasurement in OCI Return on plan assets (excluding amount included in net interest) (67,520) (860,135) 792,615 Actuarial changes arising from experience adjustments (2,652,787) − (2,652,787) Actuarial changes arising from changes in financial/demographic assumptions (21,791,179) − (21,791,179) Sub-total (24,511,486) (860,135) (23,651,351) Contributions − 25,293,666 (25,293,666) December 31, 2016 P=130,697,133 P=80,965,782 P=49,731,351

Present Value Fair Value of Net Retirement Parent Company of DBO Plan Assets Liability January 1, 2017 P=126,148,982 P=80,965,782 P=45,183,200 Net Benefit Cost in Statement of Income Current service cost 23,067,077 − 23,067,077 Net interest cost 6,469,922 4,088,767 2,381,155 Sub-total 29,536,999 4,088,767 25,448,232 Benefits paid (5,273,704) (5,273,704) − Remeasurement in OCI Return on plan assets (excluding amount included in net interest) − (1,973,088) 1,973,088 Actuarial changes arising from experience adjustments 9,529,945 − 9,529,945 Actuarial changes arising from changes in financial assumptions (6,061,548) − (6,061,548) Sub-total 3,468,397 (1,973,088) 5,441,485 December 31, 2017 P=153,880,674 P=77,807,757 P=76,072,917 155 *SGVFS028612* Present Value Fair Value of Net Retirement Parent Company of DBO Plan Assets Liability January 1, 2016 P=120,763,964 P=55,090,638 P=65,673,326 Net Benefit Cost in Statement of Income Current service cost 25,293,666 − 25,293,666 Net interest cost 5,944,105 2,667,006 3,277,099 Sub-total 31,237,771 2,667,006 28,570,765 Benefits paid (1,225,393) (1,225,393) − Remeasurement in OCI Return on plan assets (excluding amount included in net interest) − (860,135) 860,135 Actuarial changes arising from experience adjustments (2,836,181) − (2,836,181) Actuarial changes arising from changes in financial assumptions (21,791,179) − (21,791,179) Sub-total (24,627,360) (860,135) (23,767,225) Contributions − 25,293,666 (25,293,666) December 31, 2016 P=126,148,982 P=80,965,782 P=45,183,200

The major categories of plan assets as a percentage of the fair value of total plan assets follow:

2017 2016 Deposits in banks 28.13% 72.63% Debt securities: Government securities 64.18% 24.54% Private securities 7.15% 2.56% 71.33% 27.10% Other assets 0.54% 0.27% 100% 100.00%

Movements in “Remeasurement losses on retirement plan” in OCI follow:

Consolidated 2017 2016 Balance at beginning of year P=10,358,609 P=26,844,846 Remeasurement losses (gains) on retirement plan in OCI Return on plan assets (excluding amount included in net interest) 1,973,088 860,135 Due to experience adjustments 9,758,889 (2,778,202) Due to changes in financial/demographic assumptions (7,291,337) (21,633,700) Remeasurement losses (gains) during the year 4,440,640 (23,551,767) Tax effect (1,332,192) 7,065,530 Remeasurement losses (gains) during the year, net of tax 3,108,448 (16,486,237) Balance at end of year, net of tax P=13,467,057 P=10,358,609

156 *SGVFS028612* Parent Company 2017 2016 Balance at beginning of year P=10,358,609 P=26,844,846 Remeasurement losses (gains) on retirement plan in OCI Return on plan assets (excluding amount included in net interest) 1,973,088 860,135 Due to experience adjustments 9,529,945 (2,836,181) Due to changes in financial/demographic assumptions (6,061,548) (21,791,179) Remeasurement losses (gains) during the year 5,441,485 (23,767,225) Tax effect (1,632,446) 7,130,168 Remeasurement losses (gains) during the year, net of tax 3,809,040 (16,637,057) Share in OCI of the subsidiary (700,592) 150,820 3,108,448 (16,486,237) Balance at end of year, net of tax P=13,467,057 P=10,358,609

The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the DBO as of December 31, 2017 and 2016, assuming if all other assumptions were held constant:

2017 Consolidated Parent Company +/- basis points (bps) Impact to DBO Impact to DBO Discount rate +100 bps (P=146,963,340) (P=142,031,508) -100 bps 173,741,158 167,448,823 Salary increase rate +100 bps 174,639,259 168,315,856 -100 bps (145,963,333) (141,067,257)

2016 +/- basis points Consolidated Parent Company (bps) Impact to DBO Impact to DBO Discount rate +100 bps (P=120,131,501) (P=116,194,738) -100 bps 142,870,744 137,576,236 Salary increase rate +100 bps 143,555,487 138,240,060 -100 bps (119,344,416) (115,434,562)

Shown below is the maturity analysis of the undiscounted benefit payments:

Consolidated Parent Company 2017 2016 2017 2016 Less than 1 year P= 10,056,276 P= 6,782,350 P= 9,847,365 P= 6,760,113 More than 1 year to 5 years 71,303,466 49,233,106 70,138,352 48,218,318 More than 5 years to 10 years 128,225,332 109,549,008 123,566,569 106,602,246 More than 10 years to 15 years 269,862,355 220,065,974 255,148,432 207,554,266 More than 15 years to 20 years 221,528,585 187,952,652 208,339,127 169,639,965 More than 20 years 433,323,570 363,788,797 380,580,534 282,348,379

The weighted average duration of the defined benefit obligation is equivalent to 16.61 years and 22.03 years in 2017 and 2016, respectively. 157 *SGVFS028612* 21. Leases

Operating Lease - Group as Lessee The Parent Company leases its head office and branch premises for periods ranging from one (1) to ten (10) years, renewable upon mutual agreement of both parties. LSB also leases the premises occupied by its head offices and most of its branches for periods ranging from five (5) to fifteen (15) years, renewable upon mutual agreement of both parties. Various lease contracts of the Group include escalation clauses, most of which bear annual rent increase ranging from 5.00% to 10.00%.

As of December 31, 2017, 2016 and 2015, the lease rentals of the Group charged to operations amounted to =315.18P million, P=277.52 million and P=242.07 million, respectively, are included under ‘Occupancy and equipment-related expenses’ in the statements of income.

As of December 31, 2017, 2016 and 2015, the lease rentals of the Parent Company amounted to P=303.68 million, P=268.13 million and P=232.68 million, respectively, are included under ‘Occupancy and equipment-related expenses’ in the statements of income.

Future minimum rentals payable on non-cancellable leases follow:

Consolidated Parent Company 2017 2016 2017 2016 Within one year P=259,731,834 P=261,639,924 P=250,552,890 P=252,450,190 Beyond one year but not more than five years 417,228,668 531,101,622 379,456,844 496,308,714 More than five years 41,247,312 27,025,441 21,454,223 7,789,314 P=718,207,814 P=819,766,987 P=651,463,957 P=756,548,218

Finance Lease - LSB as Lessor LSB has entered to a lease on its investment property portfolio. The lease contract provides an option to purchase the properties the end of the lease term. The lease has a lease term of ten (10) years, from April 30, 2009 to March 31, 2019. The building being leased out has an estimated useful life of ten (10) years.

As of December 31, 2017 and 2016, the future minimum lease receivable under the finance lease as follows:

2017 2016 Minimum Minimum Lease Lease Receivable Interest Principal Receivable Interest Principal Within one year P=750,000 P=1,309,117 (P=559,117) P=750,000 P=1,236,467 (P=486,467) Beyond one year but not more than five years 10,000,000 339,866 9,660,134 10,750,000 1,648,986 9,101,014 P=10,750,000 P=1,648,983 P=9,101,017 P=11,500,000 P=2,885,453 P=8,614,547

158 *SGVFS028612* 22. Income and Expenses

Net service fees and commission income consists of:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Service fees and commission income: Deposit-related P=65,967,676 P=66,119,009 P=68,313,430 P=64,427,343 P=62,349,982 P=64,211,300 Credit-related 52,709,375 52,492,218 54,264,781 52,709,375 52,492,218 54,264,781 Commissions 33,275,605 29,962,443 17,429,860 32,569,202 29,273,023 16,939,854 Utility and store payment charges 15,233,502 12,683,084 10,867,246 15,233,502 12,683,084 10,867,246 Trust and other fiduciary 14,463,260 12,959,348 10,904,401 14,463,260 12,959,348 10,904,401 181,649,418 174,216,102 161,779,718 179,402,682 169,757,655 157,187,582 Service charges and commission expense: Banking fees 42,765,040 46,675,184 35,955,063 42,765,040 44,398,222 35,463,836 Brokerage and commissions 14,121,381 10,893,648 15,812,123 9,830,211 10,893,648 15,247,989 56,886,421 57,568,832 51,767,186 52,595,251 55,291,870 50,711,825 P=124,762,997 P=116,647,270 P=110,012,532 P=126,807,431 P=114,465,785 P=106,475,757

Miscellaneous income consists of:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Gain on initial recognition of investment properties (Note 11) P=33,889,035 P=17,303,414 P=35,549,709 P=31,526,513 P=12,665,271 P=30,698,176 Penalties 18,534,384 31,117,160 31,347,431 18,534,384 27,104,964 31,347,431 Gain on sale of property and equipment (Note 10) 16,475,650 3,864,811 680,079 1,756,476 3,824,515 680,079 Gain on sale of investment properties (Note 11) 5,351,114 8,148,422 10,466,376 178,689 3,543,546 5,936,420 Recovery on charged-off assets 318,879 9,345,586 1,296,639 48,970 9,275,154 1,212,938 Gain (loss) on sale of repossessed chattels (Note 13) (28,274,026) (13,778,921) 12,433,552 (28,301,193) (13,792,885) 12,283,552 Gain (loss) on initial recognition of repossed chattels (Note 11) (18,896,886) 25,017,967 6,001,755 (18,786,884) 25,066,668 5,995,744 Others (Note 7) 47,794,589 31,030,388 19,016,686 38,934,624 21,376,899 10,657,568 P=75,192,739 P=112,048,827 P=116,792,227 P=43,891,579 P=89,064,132 P=98,811,908

Other income includes share on notarial and insurance fees, rental income from safety deposit box, night depository and dividend income.

Miscellaneous expenses consist of:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Transportation and travel P=47,966,358 P=47,170,766 P=38,351,888 P=39,176,801 P=40,318,065 P=33,327,807 Stationery and supplies 41,780,709 37,691,988 33,426,496 39,556,205 34,851,681 31,523,948 Advertising 24,971,786 43,584,613 23,606,017 23,632,177 41,819,403 22,951,122 Fines, penalties and other charges 17,991,040 8,429,624 14,424,703 17,584,545 8,429,624 14,423,388 Litigation expense on assets acquired (Note 11) 14,012,833 14,901,894 8,840,503 10,208,486 13,086,222 8,064,075 Appraisal fees 6,063,676 12,772,070 8,208,406 6,063,676 12,772,070 8,208,406 Membership dues 5,651,017 3,018,896 5,876,471 5,537,984 2,918,798 5,770,516 Others 13,502,326 21,812,717 34,355,636 10,163,395 16,242,560 25,124,124 P=171,939,745 P=189,382,568 P=167,090,120 P=151,923,269 P=170,438,423 P=149,393,386

159 *SGVFS028612* Other expenses include notarial fee, registration expense, documentary stamps used, freight charges, periodicals and magazines, donations.

23. Income and Other Taxes

Under Philippine tax laws, the Parent Company is subject to percentage and other taxes (presented as ‘Taxes and licenses’ in the statement of income) as well as income taxes. Percentage and other taxes paid consist principally of gross receipts tax (GRT) and documentary stamp taxes.

Income taxes consist of final withholding taxes on gross interest income from government securities, deposits and other deposit substitutes, tax on the FCDU income and RCIT, as discussed below, on net taxable income. These income taxes, as well as the deferred tax benefit, are presented in the statement of income as ‘Provision for income tax’.

Current tax regulations provide that the RCIT rate shall be 30.00%. Interest allowed as deductible expense shall be 33.00% of interest income subjected to final tax.

The optional standard deduction (OSD) equivalent to 40.00% of gross income may be claimed as an alternative deduction in computing for the RCIT. In 2017 and 2016, the Parent Company elected to claim itemized expense deductions instead of the OSD in the RCIT computation.

The regulations also provide for MCIT of 2.00% of modified gross income and allow a NOLCO benefit. Both the excess of over the RCIT and NOLCO may be applied against the regular tax liability and taxable income, respectively, over three (3) years from the year of inception.

Current tax regulations also provide for the ceiling on the amount of entertainment and representation (EAR) expense that can be claimed as a deduction against taxable income. Under the regulation, EAR expense allowed as a deductible expense for a service company like the Parent Company is limited to the actual EAR paid or incurred but not to exceed 1.00% of net revenue. EAR expenses of the Parent Company amounted to P=82.89 million and P=62.02 million in 2017 and 2016, respectively. FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income (income from residents) is generally subject to 10.00% income tax. In addition, interest income on deposit placement with other FCDUs and offshore banking units (OBUs) is taxed at 7.50%. Current tax regulations provide that the income derived by the FCDU from foreign currency- denominated transactions with non-residents, OBUs, local commercial banks including branches of foreign banks is tax-exempt while interest income on foreign currency-denominated loans from residents other than OBUs or other depository banks under the expanded system is subject to 10.00% income tax. FCDUs’ all other income is subject to 30.00% income tax. Provision for income tax consists of the Group:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Current: Final P=151,415,187 P=125,650,508 P=118,319,148 P=147,025,406 P=122,224,466 P=114,555,705 MCIT 3,241,853 26,838,816 23,223,859 – 26,838,816 21,343,580 RCIT 47,595,411 6,054,119 – 47,595,411 1,465,282 – 202,252,451 158,543,443 141,543,007 194,620,817 150,528,564 135,899,285 Deferred (168,596,012) (61,863,999) (44,980,628) (168,596,012) (59,075,808) (15,587,919) P=33,656,439 P=96,679,444 P=96,562,379 P=26,024,805 P=91,452,756 P=120,311,366 160 *SGVFS028612* The provision for deferred taxes charged to other comprehensive income as of 2017, 2016 and 2015 amounted to =5.77P million, =4.44P million, and P=11.50 million respectively.

Net deferred tax assets (liabilities) of the Group and the Parent Company consist of the following: Consolidated Parent Company 2017 2016 2017 2016 Deferred tax assets on: Allowance for credit and impairment losses P=315,685,111 P=209,889,771 P=264,163,718 P=158,869,194 Provision for profit sharing 34,604,216 40,237,851 34,604,216 40,237,851 Retirement liability 22,821,875 13,554,959 22,821,875 13,554,959 Accumulated depreciation on investment properties and repossessed chattels 17,309,599 17,281,683 17,309,599 17,281,683 Accrued rent 17,439,717 9,887,686 17,439,717 9,887,686 Unrealized loss on financial asset at FVPL 367,147 38,448 367,147 38,448 408,227,665 290,890,398 356,706,272 239,869,821 Deferred tax liabilities on: Branch licenses 186,000,000 186,000,000 − − Unrealized gain on initial recognition of investment properties and repossessed chattels 31,885,155 38,928,407 27,703,752 34,931,662 Unrealized foreign exchange gain 10,942,551 10,470,888 10,936,688 10,455,241 Unrealized income on finance lease receivable 2,347,000 2,021,059 − − Retirement liability 335,200 34,946 − − 231,509,906 237,455,300 38,640,440 45,386,903 P=176,717,759 P=53,435,098 P=318,065,832 P=194,482,918

The Group did not set up deferred tax assets on the following temporary differences since management believes that it is not highly probable that these differences will be realized in the future: Consolidated Parent Company 2017 2016 2017 2016 Unrealized loss on AFS investments P=1,013,501,867 P=838,255,143 P=1,013,501,867 P=838,255,143 Allowance for credit and 482,618,859 1,037,754,576 101,116,755 535,225,618 impairment losses NOLCO 49,280,590 − − − Unearned income 34,056,872 22,666,240 − − Accumulated depreciation on investment properties and 20,065,201 19,275,269 repossessed chattels − − Accrued SL VL 18,836,385 − 18,836,385 − Unfunded retirement liability 5,551,978 4,432,277 − − Excess of MCIT over RCIT 5,122,132 51,935,813 − − Accrued rent 4,751,226 4,464,193 − − P=1,633,785,110 =P1,978,783,511 P=1,133,455,007 P=1,373,480,761

Details of NOLCO follow: Subsidiary Inception Year Amount Used/Expired Balance Expiry Year 2017 P=49,280,590 P=– P=49,280,590 2020 161 *SGVFS028612* Details of the excess of MCIT over RCIT follow:

Consolidated Inception Year Amount Used/Expired Balance Expiry Year 2017 P=3,241,853 P=– P=3,241,853 2020 2016 25,368,247 25,368,247 – 2019 2015 23,223,859 21,277,296 1,946,563 2018 2014 2,677,819 2,677,819 – 2017 P=54,511,778 P=46,645,543 P=5,188,416

Parent Company Inception Year Amount Used Balance Expiry Year 2016 P=25,368,247 P=25,368,247 P=– 2019 2015 21,343,580 21,277,296 66,284 2018 P=46,711,827 P=46,645,543 P=310,419

A reconciliation of statutory income tax rate to the effective income tax rate of the Group and the Parent Company follows:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Statutory income tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Tax effect of: Tax paid and tax-exempt income (34.06) (32.09) (26.56) (33.58) (31.90) (24.10) Non-deductible expenses 44.19 38.82 55.14 41.02 37.31 49.15 Unrecognized deferred tax assets (30.65) (7.64) (22.33) (22.07) (9.36) (15.72) FCDU income (4.90) 2.87 3.11 (5.01) 2.91 2.83 Others – net 5.29 (3.87) 0.78 (2.55) (1.98) 3.36 Effective income tax rate 9.87% 28.09% 40.14% 7.81% 26.98% 45.52%

24. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions or if they are subjected to common control of common significant influence such as subsidiaries and associates of subsidiaries or other related parties. Related parties may be individuals or corporate entities.

The Parent Company has several business relationships with related parties. Transactions with such parties are made in the ordinary course of business and on substantially same terms, including interest and collateral, as those prevailing at the time of comparable transactions with other parties. These transactions also did not involve more than the normal risk of collectability or present other unfavorable conditions.

162 *SGVFS028612* The significant transactions and outstanding balances of the Parent Company and the Subsidiary with its related parties follow: Parent Company 2017 2016 Amount/ Outstanding Amount/ Outstanding Nature of Transaction Volume Balance Volume Balance Terms and Conditions/Nature

Subsidiary Advances from a subsidiary (P=8,042,775) P=1,074,651 P=6,519,174 P=9,117,426 Transportation expenses and down payment for software cost Accounts receivable (219,167) 2,741,531 (6,245,094) 2,960,698 Unsecured, noninterest-bearing, payable on demand Deposit liabilities 8,573,376 12,157,062 3,583,686 3,583,686 Regular checking account, non- interest bearing Affiliates Receivable from customers 2,734,548,750 4,743,548,750 4,009,000,000 2,009,000,000 Secured loans with annual - commercial loans interest of 2.50% Receivable from customers 362,037,505 501,374,897 124,460,470,947 139,337,392 Non-interest bearing domestic bills - bills purchased purchased Deposit liabilities 16,487,419,891 21,077,305,795 20,454,512,089 4,589,885,904 Various terms and with annual interest rates ranging from nil to 2.55% Interest expense 30,227,255 18,299,800 Interest expense on deposit liabilities Interest income 49,833,268 6,524,583 Interest income from secured commercial loans Service fee income 172,619 265,814 Income from non-interest bearing domestic bills purchased Rent expense 262,361,846 103,367,676 Office rental paid to affiliates and JG Summit Holdings Inc.

Shareholders Deposit liabilities (2,682,711,182) 61,076,519 44,936,968,931 2,743,787,701 Various terms and with annual interest rates ranging from nil to 2.55% Interest expense 112,213 34,361,234 Interest expense on deposit liabilities

Board of Directors Deposit liabilities 4,550,295,779 4,593,180,867 6,741,499,964 42,885,088 Various terms and with annual interest rates ranging from nil to 2.25% Interest expense 11,428,290 2,439,371 Interest expense on deposit liabilities

Key Officers Deposit liabilities 10,554,339 19,015,674 130,269,038 8,461,335 Various terms and with annual interest rates ranging from nil to 1.88% Interest expense 35,239 120,447 Interest expense on deposit liabilities

Details on significant related party transactions of the Subsidiary with its other related parties follow:

Subsidiary 2017 2016 Amount/ Outstanding Amount/ Outstanding Nature of Transaction Volume Balance Volume Balance Terms and Conditions/Nature

Key employees Receivables from P=10,201,475 P=13,793,148 P=364,037 P=3,591,673 Loans of directors, officers and customers stockholders Interest income 194,807 269,552 Interest earned from loans of directors, officers and stockholders Deposit liabilities 378,977 773,750 (998,726) 394,773 Deposits of directors, officers and stockholders Interest expense 9,538 2,669 Interest expense on deposit liabilities Compensation and fringe 8,036,444 6,938,634 Remuneration and benefits to directors benefits and key management personnel Post-employment benefits 543,803 302,018 Post-employment benefits 163 *SGVFS028612* Regulatory Reporting In the ordinary course of business, the Parent Company has loan transactions with affiliates and with certain DOSRI. Existing banking regulations limit the amount of individual loans to DOSRI, 70.00% of which must be secured, to the total of their respective deposits and book value of their respective investments in the Parent Company. In the aggregate, loans to DOSRI generally should not exceed the Bank’s total regulatory capital or 15.00% of total loan portfolio, whichever is lower.

On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. Under the said circular, the total outstanding exposures to each of the bank’s subsidiaries and affiliates shall not exceed 10.00% of bank’s net worth, the unsecured portion of which shall not exceed 5.00% of such net worth. Further, the total outstanding exposures to subsidiaries and affiliates shall not exceed 20.00% of the net worth of the lending bank. BSP Circular No. 560 is effective on February 15, 2007.

The following table shows information relating to DOSRI accounts of the Parent Company:

Consolidated Parent Company 2017 2016 2017 2016 Total outstanding DOSRI accounts P=5,258,716,795 P=2,151,929,065 P=5,244,923,647 P=2,148,337,392 Percent of DOSRI accounts to total loans 9.09% 5.53% 9.24% 5.66% Percent of past due DOSRI loans to total DOSRI loans − − − − Percent of nonperforming DOSRI loans to total DOSRI loans − − − − Percent of unsecured DOSRI loans to total DOSRI loans 0.24% 0.05% − −

The Parent Company has no assets pledged as collaterals on its liabilities.

The retirement fund of the Parent Company’s employees amounted to P=77.81 million and P=80.97 million as of December 31, 2017 and 2016, respectively (see Note 20). The fund is being managed by JG Summit Multi-Employer Retirement Plan (MERP), a corporation created for the purpose of managing the funds of the Group, with Robinsons Bank Corporation (RBC)-Trust and Investment Group as the trustee.

Details of the transactions of the Parent Company with its retirement plan follow:

2017 Amount/ Outstanding Related Party Nature of Transaction Volume Balance Terms and Conditions/Nature Retirement plan Contribution and interest (P=3,158,025) P=77,807,757 Contributions to the Fund plus earned interest earned during the year

2016 Amount/ Outstanding Related Party Nature of Transaction Volume Balance Terms and Conditions/Nature Retirement plan Contribution and interest P=1,806,871 P=80,965,782 Contributions to the Fund plus earned interest earned during the year

The retirement plan under the MERP has an Executive Retirement Committee, which is mandated to approve the plan, trust agreement, investment plan, including any amendments or modifications thereto, and other activities of the plan. Certain members of the BOD of the Parent Company are represented in the Executive Retirement Committee. RBC manages the plan based on the mandate as defined in the trust agreement. 164 *SGVFS028612* Details of remuneration of directors and other key management personnel of the Group and the Parent Company follow:

Consolidated Parent Company 2017 2016 2017 2016 Short-term benefits P=81,482,135 P=72,065,338 P=74,183,691 P=65,126,704 Post-employment benefits 6,219,193 5,539,408 5,675,390 5,291,390 P=87,701,328 P=77,604,746 P=79,859,081 P=70,418,094

25. Trust Operations

Properties held by the Parent Company in fiduciary or agency capacity for their customers are not included in the accompanying statement of financial position since these are not assets of the Parent Company (see Note 26).

In compliance with the requirements of the General Banking Law relative to the Parent Company’s trust functions, treasury notes and bills with a total face value of P=171.00 million included under Available-for-Sale Investments’ as of December 31, 2017 and P=140.00 million under ‘Held-to- Maturity Investments’ as of December 31, 2016, were deposited with the BSP (see Note 7).

An appropriation of 10.00% of the Parent Company’s income from trust operations is set aside as surplus reserve to absorb any losses that may arise from its trust functions.

26. Commitments and Contingencies

a. The Group is also involved in a number of legal proceedings. The estimate of the probable costs for the resolutions of these claims has been developed in consultation with outside counsel handling the Group’s defense and is based on an analysis of potential results. The Group does not believe that these proceedings will have a material adverse effect on the financial statements.

b. In the normal course of the Group’s operations, there are various outstanding commitments, contingent liabilities and bank guarantees which are not reflected in the accompanying financial statements. The Group does not anticipate material unreserved losses as a result of these transactions.

Following is a summary of the Group’s commitments and contingent liabilities at their equivalent peso contractual amounts:

Consolidated Parent Company 2017 2016 2017 2016 Trust and investment group accounts (Note 25) P=16,424,743,919 P=15,507,740,556 P=16,424,743,919 P=15,507,740,556 Contingent - foreign currency swap 1,936,176,488 5,681,648,084 1,936,176,488 5,681,648,084 Inward bills for collection 966,438,653 288,993,938 966,438,653 288,993,938 Spot exchange - foreign currency 952,213,950 2,338,846,500 952,213,950 2,338,846,500 Outward bills for collection 683,173,837 253,379,120 683,173,837 253,379,120 Letters of credit 483,189,586 479,316,335 483,189,586 479,316,335 Committed credit lines 337,635,067 22,000,000 337,635,067 22,000,000 Guarantees issued 184,930,289 81,382,715 184,930,289 81,382,715 Late deposit/payment received 172,496,144 11,795,810 170,403,076 9,817,849 Items held for safekeeping 78,187 47,997 42,474 44,349 Other contingent account 270,701 278,508 268,686 277,159

165 *SGVFS028612* 27. Segment Information

The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served with segment representing a strategic business unit. The Group’s business segments follow: ∂ Consumer Banking - principally providing consumer type loans and support for effective sourcing and generation of consumer business; ∂ Corporate Banking - principally handling loans and other credit facilities and deposit and current accounts for corporate and institutional customers; ∂ Treasury - principally providing money market, trading and treasury services, as well as the management of the Group’s funding operations by use of treasury bills, government securities and placements and acceptances with other banks, through treasury and corporate banking; ∂ Branch Banking - principally handling branch deposits and providing loans and other loan related businesses for domestic middle market clients; and ∂ Others - principally handling other services including but not limited to trust operations, remittances, leasing, account financing, and other support services. Other operations of the Group comprise the operations and financial control groups.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income after taxes, which is measured in a manner consistent with PFRS as shown in the statements of income. This is regularly reported to the Group’s Chief Operating Decision Maker.

The Group’s Chief Operating Decision Maker is the Parent Company’s President and Chief Executive Officer.

Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Interest income is reported net, as management primarily relies on the net interest income as performance measure, not the gross income and expense.

The Group’s revenue-producing assets are located in the Philippines (i.e., one geographical location), therefore, geographical segment information is no longer presented.

The Group has no significant customers which contributes 10.00% or more of the consolidated revenue net of interest expense. Transactions between segments are conducted at estimated market rates on an arm’s length basis. Interest is charged/credited to business segments based on a pool rate which approximates the cost of funds.

166 *SGVFS028612* The following table presents revenue and income information of operating segments presented in accordance with PFRS and segment assets and liabilities: (amounts in millions):

December 31, 2017 Consumer Corporate Branch Banking Banking Treasury Banking Others Total Statement of Income Net interest income: Third party P=1,418 P=1,600 P=221 (P=418) P=162 P=2,983 1,418 1,600 221 (418) 162 2,983 Noninterest income 35 2 258 98 142 535 Revenue - net of interest expense 1,453 1,602 479 (320) 304 3,518 Noninterest expense 520 290 187 968 1,211 3,176 Income before income tax P=933 P=1,312 P=292 (P=1,288) (P=907) P=342 Provision for income tax 34 Net income P=308

Statement of Financial Position Total assets P=16,332 P=39,584 P=41,133 P=3,069 P=4,795 P=104,913 Total liabilities P=716 P=248 P=44,763 P=44,358 P=2,735 P=92,820

Other Segment Information Capital expenditures P=48 P=27 P=4 P=272 P=236 P=587 Depreciation and amortization P=50 P=7 P=1 P=38 P=230 P=326 Provision for credit and impairment losses P=51 P=160 P=− P=− P=30 P=241

December 31, 2016 Consumer Corporate Branch Banking Banking Treasury Banking Others Total Statement of Income Net interest income: Third party P=1,153 P=1,011 P=509 (P=394) P=142 P=2,421 1,153 1,011 509 (394) 142 2,421 Noninterest income 73 30 230 102 111 546 Revenue - net of interest expense 1,226 1,041 739 (292) 253 2,967 Noninterest expense 423 168 121 828 1,083 2,623 Income before income tax P=803 P=873 P=618 (P=1,120) (P=830) 344 Provision for income tax 97 Net income P=247

Statement of Financial Position Total assets P=11,627 P=26,222 P=32,247 P=3,341 P=4,175 P=77,612 Total liabilities P=505 P=66 P=20,257 P=42,652 P=2,164 P=65,644

Other Segment Information Capital expenditures P=28 P=20 P=4 P=261 P=200 P=513 Depreciation and amortization P=45 P=5 P=1 P=37 P=214 P=302 Provision for credit and impairment losses P=63 P=83 P=− P=− P=10 P=156

167 *SGVFS028612* December 31, 2015 Consumer Corporate Branch Banking Banking Treasury Banking Others Total Statement of Income Net interest income: Third party P=1,025 P=895 P=435 (P=336) P=110 P=2,129 1,025 895 435 (336) 110 2,129 Noninterest income 101 53 169 103 17 443 Revenue - net of interest expense 1,126 948 604 (233) 127 2,572 Noninterest expense 317 166 102 455 1,291 2,331 Income before income tax P=809 P=782 P=502 (P=688) (P=1,164) 241 Provision for income tax 97 Net income P=144

Statement of Financial Position Total assets P=7,675 P=18,577 P=24,662 P=2,669 P=4,076 P=57,659 Total liabilities P=271 P=83 P=9,001 P=33,409 P=2,906 P=45,670

Other Segment Information Capital expenditures P=13 P=14 P=4 P=232 P=208 P=471 Depreciation and amortization P=32 P=2 P=1 P=30 P=192 P=257 Provision for credit and impairment losses P=111 P=81 P=− P=− P=74 P=266

Non-interest income consists of service charges, fees and commissions, profit from assets sold, trading and securities gain - net, foreign exchange gain - net, income from trust operations, leasing, dividends and miscellaneous income. Non-interest expense consists of compensation and fringe benefits, taxes and licenses, provision for credit and impairment losses, depreciation and amortization, occupancy and equipment-related cost, amortization of software costs, income (loss) attributable to non-equity non-controlling interest and miscellaneous expense.

28. Financial Performance

The following basic ratios measure the financial performance of the Group:

Consolidated Parent Company 2017 2016 2017 2016 Return on average equity 2.56% 2.07% 2.56% 2.07% Return on average assets 0.34% 0.37% 0.34% 0.38% Net interest margin on average earnings assets 3.50% 3.92% 3.34% 3.73%

29. Notes to Statements of Cash Flows

As of December 31, 2017 and 2016, interbank loans receivables of the Group and Parent Company to local savings bank amounting to P=23.75 million and P=96.00 million, respectively, which have original maturity of more than three (3) months are not considered cash and cash equivalents.

168 *SGVFS028612* Details of non-cash investing activities follow:

Consolidated Parent Company 2017 2016 2015 2017 2016 2015 Increase in capital stock due to conversion of deposit for future stock subscription P=− P=445,960,000 P=− P=− P=− P=− Increase in NUGL due to MTM loss (gain) on AFS 170,346,723 275,307,049 − 170,346,723 275,307,049 − Additions to investment properties due to foreclosure 85,503,774 91,352,180 65,416,514 78,438,983 69,995,224 49,023,341 Disposal of investment properties and repossessed chattels through sales contract receivable − 34,045,955 44,567,987 − 30,613,955 44,567,987 Increase in property and equipment due to reclassifications 2,435,778 17,938,868 4,975,862 46,497,771 7,502,851 4,975,862 Increase in repossessed chattels due to foreclosure 234,419,527 225,586,603 128,093,011 233,867,525 225,420,303 128,086,999 Increase in software licenses due to reclassifications from advances to suppliers − − 373,181,951 − − 373,181,951 Increase in software licenses due to reclassifications from property and equipment − − 46,195,441 − − 46,195,441

The changes in the liabilities of the Group and the Parent Company arising from financing activities has no non-cash component as of December 31, 2017, 2016 and 2015.

30. Approval of the Release of the Financial Statements

The accompanying financial statements of the Group and of the Parent Company were approved and authorized for issue by the BOD on March 26, 2018.

31. Supplementary Information Required under Revenue Regulations (RR) 15-2010

The BIR issued RR No. 15-2010 prescribing the manner of compliance in connection with the preparation and submission of financial statements accompanying the tax returns. This RR include provisions for additional disclosure requirements in the notes to the financial statements, particularly on composition of taxes, duties, licenses paid or accrued during the year.

Supplementary Information Required Under RR No. 15-2010 The Parent Company reported and/or paid the following types of taxes for the year:

Gross Receipts Tax (GRT) The National Internal Revenue Code (NIRC) of 1997 provides for the imposition of GRT on gross receipts derived by banks from sources within the Philippines. Accordingly, the Parent Company’s gross receipts are subject to GRT as re-imposed in RA No. 9238 beginning January 1, 2004.

169 *SGVFS028612* Details of the Parent Company’s gross receipts and GRT due declared and paid for taxable year 2017 follow:

Gross Receipts GRT Due Interest income P=3,500,189,668 P=86,423,748 Other income 124,840,538 8,738,838 P=3,625,030,206 P=95,162,586

Documentary Stamp Tax: The Documentary stamp tax (DST) paid or accrued on the following transactions are:

Transaction Amount DST thereon Deposits P=307,725,477,619 P=148,926,514 Loan instruments 30,329,539,342 151,647,697 P=338,055,016,961 P=300,574,211

Other Taxes and Licenses This includes all other taxes, local and national, including documentary stamp tax, fringe benefits tax, local business tax, licenses and permit fees lodged under the ‘Salaries and employees’ benefits and ‘Taxes and Licenses’ account in the statement of income and expenses.

a. Local Business Permits P=11,519,406 Community Tax Certificates 10,500

b. National Gross Receipt Tax P=73,796,775

Part of the GRT and DST remitted to the BIR are shouldered/ charged to clients/borrowers.

Withholding Taxes The following table shows the breakdown of taxes withheld and remitted in 2017:

Total Withheld Total Remitted Withholding tax on deposits P=146,776,930 P=129,193,651 Withholding taxes on compensation and benefits 140,850,474 119,828,529 Expanded withholding taxes 31,947,879 28,768,176 P=319,575,283 P=277,790,356

As of December 31, 2017, there are no outstanding tax cases under investigation, litigation or prosecution in courts or bodies outside BIR.

170 *SGVFS028612* SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A), Philippines November 10, 2015, valid until November 9, 2018

INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of Directors Robinsons Bank Corporation 17th Floor, Galleria Corporate Center EDSA corner Ortigas Avenue Quezon City

We have audited in accordance with Philippine Standards on auditing, the financial statements of Robinsons Bank Corporation and Subsidiary (the Group) as at December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, and have issued our report thereon dated March 26, 2018. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Supplementary Schedules are the responsibility of the Group’s management. The schedules are presented for purposes of complying with Securities Regulation Code Rule 68, As Amended (2011) and are not part of the basic financial statements. The schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the information required to be set forth therein in relation to the basic financial statements taken as whole.

SYCIP GORRES VELAYO & CO.

Miguel U. Ballelos, Jr. Partner CPA Certificate No. 109950 Sec Accreditation No. 1566-A (Group A), June 9, 2016, valid until June 9, 2019 Tax Identification No. 241-031-088 BIR Accreditation No. 08-001998-114-2016 February 15, 2016, valid until February 14, 2019 PTR No. 6621218, January 9, 2018, Makati City

March 26, 2018

171 *SGVFS028612*

A member firm of Ernst & Young Global Limited ROBINSONS BANK CORPORATION AND SUBSIDIARY INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES DECEMBER 31, 2017

Schedule Content Page No. Part I I Schedule of Reconciliation of Retained Earnings Available for Dividend Declaration (Part 1 4C, Annex 68-C) II Schedule of All Effective Standards and Interpretations under PFRS (Part 1 4J) III Map Showing Relationships Between and Among Parent and Subsidiaries (Part 1 4H)

Part II A Financial Assets ∂ Financial assets at fair value through profit or loss ∂ Financial assets at fair value through other comprehensive income ∂ Investment securities at amortized cost (Part II 6D, Annex 68-E, A) B Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) (Part II 6D, Annex 68-E, B) C Amounts Receivable from Related Parties which are Eliminated During the Consolidation of Financial Statements (Part II 6D, Annex 68-E, C) D Intangible Assets - Other Assets (Part II 6D, Annex 68-E, D) E Long-Term Debt (Part II 6D, Annex 68-E, E) F Indebtedness to Related Parties (Included in the Consolidated Statements of Financial Position) (Part II 6D, Annex 68-E, F) G Guarantees of Securities of Other Issuers (Part II 6D, Annex 68-E, G) H Capital Stock (Part II 6D, Annex 68-E, H)

Part III Schedule of Financial Soundness Indicators

172 ROBINSONS BANK CORPORATION SCHEDULE I RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION DECEMBER 31, 2017 (Amounts in Thousands)

The table below presents the retained earnings available for dividend declaration as of December 31, 2017:

Unappropriated Retained Earnings, beginning P=816,363

Net income during the year 307,387

Add: Market valuation gain on financial assets at FVPL 7,095 Reversal of appropriations of retained earnings during the year 106,314 Less: Deferred tax assets (181,539) Unrealized (gain) loss on foreclosure of investment properties and repossessed chattels (106,284) Total Retained Earnings available for dividend declaration as of December 31, 2017 P=949,336

173 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE II SCHEDULE OF ALL PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS) [WHICH CONSISTS OF PFRSs, PHILIPPINE ACCOUNTING STANDARDS (PASs) AND PHILIPPINE INTERPRETATIONS] EFFECTIVE AS OF DECEMBER 31, 2017

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2017 Adopted Early Adopted Applicable Framework for the Preparation and Presentation of Financial Statements  Conceptual Framework Phase A: Objectives and qualitative characteristics PFRSs Practice Statement Management Commentary  Philippine Financial Reporting Standards PFRS 1 First-time Adoption of Philippine Financial Reporting  (Revised) Standards Amendments to PFRS 1: Additional Exemption for  First-time Adopters Amendments to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time  Adopters Amendments to PFRS 1: Severe Hyperinflation and  Removal of Fixed Date for First-time Adopters Amendments to PFRS 1: Government Loans  Amendment to PFRS 1: Meaning of Effective PFRSs  PFRS 2 Share-based Payment  Amendments to PFRS 2: Vesting Conditions and  Cancellations Amendments to PFRS 2: Group Cash-settled Share-  based Payment Transactions Amendment to PFRS 2: Definition of Vesting  Condition Amendments to PFRS 2: Classification and  Measurement of Share-based Payment Transactions* PFRS 3 Business Combinations  (Revised) Amendment to PFRS 3: Accounting for Contingent  Consideration in a Business Combination Amendment to PFRS 3: Scope Exceptions for Joint  Arrangements PFRS 4 Insurance Contracts  Amendments to PFRS 4: Financial Guarantee Contracts  Amendments to PFRS 4: Applying PFRS 9, Financial  Instruments with PFRS 4, Insurance Contracts* PFRS 5 Non-current Assets Held for Sale and Discontinued  operation Amendment to PFRS 5: Changes in methods of disposal  PFRS 6 Exploration for and Evaluation of Mineral Resources  PFRS 7 Financial Instruments: Disclosures  Amendments to PFRS 7: Transition  Amendments to and PFRS 7: Reclassification of  Financial Assets Amendments to PFRS 7: Reclassification of Financial  Assets - Effective Date and Transition Amendments to PFRS 7: Improving Disclosures about  Financial Instruments Amendments to PFRS 7: Disclosures - Transfers of  Financial Assets

174 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2017 Adopted Early Adopted Applicable Amendments to PFRS 7: Disclosures - Offsetting  Financial Assets and Financial Liabilities Amendments to PFRS 7: Mandatory Effective Date of  PFRS 9 and Transition Disclosures Amendments to PFRS 7: Additional hedge accounting Not early adopted disclosures (and consequential amendments) resulting (Effective from the introduction of the hedge accounting chapter January 1, 2018) in PFRS 9 Amendments to PFRS 7: Servicing Contracts and Applicability of the Amendments to PFRS 7 to  Condensed Interim Financial Statements PFRS 8 Operating Segments  Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the  Reportable Segments’ Assets to the Entity’s Assets PFRS 9 Financial Instruments: Classification and Measurement  of Financial Assets (2010) Financial Instruments: Classification and Measurement  of Financial Liabilities (2010) PFRS 9, Financial Instruments (2014) Not early adopted (Effective January 1, 2018) PFRS 10 Consolidated Financial Statements  Amendments to PFRS 10: Transition Guidance  Amendments to PFRS 10: Investment Entities  Amendments to PFRS 10: Sale or Contribution of Assets Between an Investor and its Associate or Joint  Venture** Amendments to PFRS 10: Investment Entities:  Applying the Consolidation Exception PFRS 11 Joint Arrangements  Amendments to PFRS 11: Transition Guidance  Amendments to PFRS 11: Accounting for Acquisitions  of Interests in Joint Operations PFRS 12 Disclosures of Interests in Other Entities  Amendments to PFRS 12: Transition Guidance  Amendments to PFRS 12: Investment Entities  Amendments to PFRS 12: Investment Entities Applying  the Consolidation Exception PFRS 13 Fair Value Measurement  Amendment to PFRS 13: Short-term Receivables and  Payables Amendment to PFRS 13: Portfolio Exception  PFRS 14 Regulatory Deferral Accounts  PFRS 15 Not early adopted (Effective Revenue from Contracts with Customers* January 1, 2018) Not early adopted (Effective Amendments to PFRS 15, Clarifications to PFRS 15* January 1, 2018) Not early adopted PFRS 16 (Effective Lease January 1, 2019) Philippine Accounting Standards PAS 1 Presentation of Financial Statements  (Revised) Amendments to PAS 1: Puttable Financial Instruments  and Obligations Arising on Liquidation

175 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2017 Adopted Early Adopted Applicable Amendments to PAS 1: Presentation of Items of Other  Comprehensive Income Amendments to PAS 1 (Revised): Disclosure Initiative  PAS 2 Inventories  PAS 7 Statement of Cash Flows  Amendments to PAS 7: Disclosure Initiative  PAS 8 Accounting Policies, Changes in Accounting Estimates  and Errors PAS 10 Events after the Reporting Period  PAS 11 Construction Contracts  PAS 12 Income Taxes  Amendments to PAS 12- Deferred Tax: Recovery of  Underlying Assets Amendments to PAS 12: Recognition of Deferred Tax  Assets for Unrealized Losses PAS 16 Property, Plant and Equipment  Amendment to PAS 16: Revaluation Method – Proportionate Restatement of Accumulated  Depreciation on Revaluation Amendments to PAS 16: Clarification of Acceptable  Methods of Depreciation and Amortization Amendments to PAS 16, Agriculture: Bearer Plants  PAS 17 Leases  PAS 18 Revenue  PAS 19 Employee Benefits  (Revised) Amendments to PAS 19: Defined Benefit Plans:  Employee Contribution Amendments to PAS 19: Discount Rate: Regional  Market Issue PAS 20 Accounting for Government Grants and Disclosure of  Government Assistance PAS 21 The Effects of Changes in Foreign Exchange Rates  Amendment: Net Investment in a Foreign Operation  PAS 23 Borrowing Costs  (Revised) PAS 24 Related Party Disclosures  (Revised) Amendments to PAS 24: Key Management Personnel  PAS 26 Accounting and Reporting by Retirement Benefit Plans  PAS 27 Separate Financial Statements  (Amended) Amendments for investment entities  Amendments to PAS 27: Equity Method in Separate  Financial Statements PAS 28 Investments in Associates and Joint Ventures  (Amended) Amendments to PAS 28 (Amended): Sale or Contribution of Assets between an Investor and its  Associate or Joint Venture** Amendments to PAS 28 (Amended): Investment  Entities: Applying the Consolidation Exception PAS 29 Financial Reporting in Hyperinflationary Economies  PAS 32 Financial Instruments: Disclosure and Presentation  Amendments to PAS 32: Puttable Financial Instruments  and Obligations Arising on Liquidation Amendments to PAS 32: Classification of Rights Issues  Amendments to PAS 32: Offsetting Financial Assets  and Financial Liabilities PAS 33 Earnings per Share 

176 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2017 Adopted Early Adopted Applicable PAS 34 Interim Financial Reporting  Amendment to PAS 34: Disclosure of information  ‘Elsewhere in the Interim financial report’ PAS 36 Impairment of Assets  Amendments to PAS 36: Recoverable Amount  Disclosures for Non-Financial Assets PAS 37 Provisions, Contingent Liabilities and Contingent  Assets PAS 38 Intangible Assets  Amendments to PAS 38 : Revaluation Method – Proportionate Restatement Of Accumulated  Amortization Amendments to PAS 38: Clarification of Acceptable  Methods of Depreciation and Amortization PAS 39 Financial Instruments: Recognition and Measurement  Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial  Liabilities Amendments to PAS 39: Cash Flow Hedge Accounting  of Forecast Intragroup Transactions Amendments to PAS 39: The Fair Value Option  Amendments to PAS 39: Financial Guarantee Contracts  Amendments to PAS 39: Reclassification of Financial  Assets Amendments to PAS 39: Reclassification of Financial  Assets - Effective Date and Transition Amendment to PAS 39: Embedded Derivatives  Amendment to PAS 39: Eligible Hedged Items  Amendment to PAS 39: Novation of Derivatives and  Continuation of Hedge Accounting Amendments to PAS 39: Hedge Accounting  PAS 40 Investment Property  Amendments to PAS 40: Clarifying the Interrelationship between PFRS 3 and PAS 40 when  Classifying Property as Investment Property or Owner- Occupied Property PAS 41 Agriculture  Amendments to PAS 41, Agriculture: Bearer Plants  Philippine Interpretations IFRIC 1 Changes in Existing Decommissioning, Restoration and  Similar Liabilities IFRIC 2 Members’ Share in Co-operative Entities and Similar  Instruments IFRIC 4 Determining Whether an Arrangement Contains a Lease  IFRIC 5 Rights to Interests arising from Decommissioning,  Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific  Market - Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies  IFRIC 9 Reassessment of Embedded Derivatives  Amendments to Philippine Interpretation IFRIC-9:  Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment  IFRIC 12 Service Concession Arrangements  IFRIC 13 Customer Loyalty Programmes  IFRIC 14 The Limit on a Defined Benefit Asset, Minimum  Funding Requirements and their Interaction 177 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2017 Adopted Early Adopted Applicable Amendments to Philippine Interpretations IFRIC - 14,  Prepayments of a Minimum Funding Requirement IFRIC 16 Hedges of a net Investment in a Foreign Operation  IFRIC 17 Distributions of Non-cash Assets to Owners  IFRIC 18 Transfers of Assets from Customers  IFRIC 19 Extinguishing Financial Liabilities with Equity  Instruments IFRIC 20 Stripping Costs in the Production Phase of a Surface  Mine IFRIC 21 Levies  SIC-7 Introduction of the Euro  SIC-10 Government Assistance - No Specific Relation to  Operating Activities SIC-15 Operating Leases - Incentives  SIC-25 Income Taxes- Changes in the Tax Status of an Entity  or its Shareholders SIC-27 Evaluating the Substance of Transactions Involving the  Legal Form of a Lease SIC-29 Service Concession Arrangements: Disclosures  SIC-31 Revenue - Barter Transactions Involving Advertising  Services SIC-32 Intangible Assets - Web Site Costs  *These standards have been adopted by the Group but it has currently no significant or relevant transactions covered by these standards.

Standards and Interpretations applicable to annual periods beginning on or after January 1, 2017 (where early application is allowed) will be adopted by the Group as they become effective.

178 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE III MAP SHOWING RELATIONSHIPS BETWEEN AND AMONG PARENT AND SUBSIDIARY

ROBINSONS BANK CORPORATION

LEGAZPI SAVINGS BANK (100%)

179 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE A -FINANCIAL ASSETS DECEMBER 31, 2017

Value Based on Name of Issuing Entity and Amount Shown in the Market Quotations Income Received and Accrued Description of Each Issue Balance Sheet/Notes at Balance Sheet Date

Financial Assets at Fair Value Through Profit or Loss Various/Government Bonds P=48,101,461 P=48,101,461 P=451,709 Derivatives classified at FVPL (Foreign Swap) 32,870 32,870 – P=48,134,331 P=48,134,331 P=451,709 Available-for-Sale Investments Various/Government Bonds P=12,514,475,649 P=12,514,475,649 122,586,587 Various/Private Bonds 6,476,770,842 6,476,770,842 42,317,197 Various Equity Quoted Securities 179,900,000 179,900,000 – Various Equity Unquoted Securities 23,878,073 23,878,073 – P=19,195,024,564 P=19,195,024,564 P=164,903,784

P=19,243,158,895 P=19,243,158,895 P=165,355,493

180 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES) DECEMBER 31, 2017

Balance at Amounts Amounts Non- Balance at end Name of Debtor beginning of Additions Written- Current Collected Current of period period off

NONE TO REPORT

Receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders are subject to usual terms in the normal course of business.

181 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION OF FINANCIAL STATEMENTS DECEMBER 31, 2017

Balance at Amounts Amounts Balance at end Name of Debtor beginning of Additions Current Non- Current Collected Written-off of period period

Legazpi Savings Bank (Subsidiary) P=2,960,698 P=− (P=219,167) P=− P=2,741,531 P=− P=2,741,531

182 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE D - INTANGIBLE ASSETS - OTHER ASSETS DECEMBER 31, 2017

Other changes Beginning Additions at Charged to cost Charged to Description additions Ending Balance Balance Cost and expenses other accounts (deductions)

Goodwill P=244,327,006 P=− P=− P=− P=− P=244,327,006 Branch licenses 997,450,182 1,814,157 − − (200,000) 999,064,339 Software costs 353,353,540 53,850,078 (80,336,227) − 953,378 327,820,769 P=1,595,130,728 P=55,664,235 (=P80,336,227) P=− P=753,378 P=1,571,212,114

183 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE E - LONG-TERM DEBT DECEMBER 31, 2017

Amount shown Amount shown Interest Amount authorized by under caption Title of issue and type of obligation under caption Rate Maturity Date indenture “Long-Term “Current portion” Debt” %

Long-term Negotiable Certificates of P=3,000,000,000 P=− P=4,152,240,531 4.125 12/16/2022 Deposit (maturing on December 16, 2022) (with a right to increase the aggregare issue up to P=5,000,000,000 in the event of over subscription)

Time Deposits P=− 3,854,668,527 1.250- 2.875 Various

184 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE F - INDEBTEDNESS TO RELATED PARTIES (LONG-TERM LOANS FROM RELATED COMPANIES) DECEMBER 31, 2017

Name of Related Parties (i) Balance at beginning of period Balance at end of period (ii)

- NONE TO REPORT -

185 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE G – GUARANTEES OF SECURITIES OF OTHER ISSUERS DECEMBER 31, 2017

Name of issuing entity of Total amount of securities guaranteed by Title of issue of each class Amount owned by person guaranteed and Nature of guarantee the company for which this of securities guaranteed of which statement is filed outstanding statement is filed

- NONE TO REPORT -

186 ROBINSONS BANK CORPORATION AND SUBSIDIARY SCHEDULE H - CAPITAL STOCK DECEMBER 31, 2017

Number of shares Number of shares issued and Number of shares held by Number of reserved for outstanding as Title of Issue shares options, warrants, shown under the Directors, authorized conversion and related balance Related parties officers and Others other rights sheet caption employees

Common stock - P=10 par value 1,500,000,000 1,200,000,00 − 1,199,975,248 11 24,741

187 ROBINSONS BANK CORPORATION AND SUBSIDIARY SUPPLEMENTARY SCHEDULE OF FINANCIAL SOUNDNESS RATIOS AS AT DECEMBER 31, 2017 AND 2016

Liquidity ratio Consolidated Parent Company 2017 2016 2017 2016 Liquid assets P=24,804,421,652 P=19,868,117,528 P=23,836,824,261 P=18,960,336,495 Total assets 104,913,030,870 77,611,891,486 103,093,463,816 75,838,014,994 Ratio of liquid assets to total assets 23.64 25.60 23.12 25.00

Debt to equity ratio Consolidated Parent Company 2017 2016 2017 2016 Total liabilities P=92,819,697,490 P=65,643,675,297 P=91,000,130,436 P=63,869,798,805 Total equity 12,093,333,380 11,968,216,189 12,093,333,380 11,968,216,189 Ratio of debt to equity 767.53 548.48 752.48 533.66

Asset to equity ratio Consolidated Parent Company 2017 2016 2017 2016 Total assets P=104,913,030,870 P=77,611,891,486 P=103,093,463,816 P=75,838,014,994 Total equity 12,093,333,380 11,968,216,189 12,093,333,380 11,968,216,189 Ratio of total assets to equity 867.53 648.48 852.48 633.66

Interest rate coverage ratio Consolidated Parent Company 2017 2016 2017 2016 Income before income tax P=341,043,821 P=344,159,922 P=333,412,187 P=338,933,234 Interest expense 1,126,827,598 648,863,123 1,098,624,920 617,621,632 Interest coverage ratio 30.27 53.04 30.35 54.88

Profitability ratio Consolidated Parent Company 2017 2016 2017 2016 Net income P=307,387,382 P=247,480,478 P=307,387,382 P=247,480,478 Average total equity 12,030,774,785 11,978,626,752 12,030,774,785 11,978,626,752 Return on average equity 2.56 2.07 2.56 2.07 Net income P=307,387,382 P=247,480,478 P=307,387,382 P=247,480,478 Average total assets 91,262,461,178 67,635,584,762 89,465,739,405 65,838,137,774 Return on average assets 0.34 0.37 0.34 0.38 Net financial margin P=2,982,652,718 P=2,420,561,759 P=2,785,356,456 P=2,251,662,800 Average interest earning asset 85,101,848,089 61,676,876,497 83,460,320,529 60,286,737,164 Net interest margin on average earning assets 3.50 3.92 3.34 3.73

Asset quality ratio Consolidated Parent Company 2017 2016 2017 2016 Non-performing loans (net of specific allowance) P=481,429,757 P=353,749,593 P=372,935,130 P=293,486,462 Gross Loans 57,820,089,820 38,941,019,737 56,733,541,000 37,959,119,839 Non-performing loans ratio* 0.83 0.91 0.66 0.77 Allowance for probable losses P=615,482,742 P=784,875,886 P=392,046,491 P=397,721,518 Non-performing loans (gross of allowance) 1,096,912,499 1,138,625,479 764,981,621 691,207,980 Non-performing loan cover* 56.11 68.93 51.25 57.54 * Computed based on BSP Circular 772

188